10-Q
Andersons, Inc. (ANDE)
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|
For the quarterly period ended 06/30/2021
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|
For the transition period from to .
Commission file number 000-20557
THE ANDERSONS, INC.
(Exact name of the registrant as specified in its charter)
| Ohio | 34-1562374 | |
|---|---|---|
| (State of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 1947 Briarfield Boulevard | ||
| Maumee | Ohio | 43537 |
| (Address of principal executive offices) | (Zip Code) |
(419) 893-5050
(Telephone Number)
| Securities registered pursuant to Section 12(b) of the Act: | ||
|---|---|---|
| Title of each class: | Trading Symbol | Name of each exchange on which registered: |
| Common stock, $0.00 par value, $0.01 stated value | ANDE | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ý |
|---|---|---|---|
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| Emerging growth company | ☐ | ||
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ý
The registrant had 33,282,749 common shares outstanding at July 23, 2021.
Table of Contents
THE ANDERSONS, INC.
INDEX
| Page No. | |
|---|---|
| PART I. FINANCIAL INFORMATION | |
| Item 1. Financial Statements (Unaudited) | |
| Condensed Consolidated Balance Sheets – June 30, 2021, December 31, 2020 and June 30, 2020 | 1 |
| Condensed Consolidated Statements of Operations – Three and Six months ended June 30, 2021 and 2020 | 2 |
| Condensed Consolidated Statements of Comprehensive Income (Loss) – Three and Six months ended June 30, 2021 and 2020 | 3 |
| Condensed Consolidated Statements of Cash Flows – Six months ended June 30, 2021 and 2020 | 4 |
| Condensed Consolidated Statements of Equity – Three and Six months ended June 30, 2021 and 2020 | 5 |
| Notes to Condensed Consolidated Financial Statements | 7 |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk | 31 |
| Item 4. Controls and Procedures | 32 |
| PART II. OTHER INFORMATION | |
| Item 1. Legal Proceedings | 33 |
| Item 1A. Risk Factors | 33 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 33 |
| Item 4. Mine Safety Disclosure | 33 |
| Item 6. Exhibits | 34 |
The Andersons, Inc. | Q2 2021 Form 10-Q | 2
Table of Contents
Part I. Financial Information
Item 1. Financial Statements
The Andersons, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)(In thousands)
| June 30,<br>2021 | December 31,<br>2020 | June 30,<br>2020 | ||||
|---|---|---|---|---|---|---|
| Assets | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 27,538 | $ | 29,123 | $ | 30,011 |
| Accounts receivable, net | 721,575 | 659,834 | 537,011 | |||
| Inventories (Note 2) | 912,299 | 1,300,693 | 616,323 | |||
| Commodity derivative assets – current (Note 5) | 507,148 | 320,706 | 112,089 | |||
| Other current assets | 65,740 | 106,053 | 102,755 | |||
| Total current assets | 2,234,300 | 2,416,409 | 1,398,189 | |||
| Other assets: | ||||||
| Goodwill | 135,709 | 135,709 | 135,709 | |||
| Other intangible assets, net | 127,756 | 142,940 | 160,180 | |||
| Right of use assets, net | 61,299 | 56,031 | 62,838 | |||
| Other assets, net | 73,678 | 49,907 | 48,235 | |||
| Total other assets | 398,442 | 384,587 | 406,962 | |||
| Rail assets leased to others, net (Note 3) | 574,585 | 591,946 | 592,821 | |||
| Property, plant and equipment, net (Note 3) | 841,762 | 879,179 | 906,017 | |||
| Total assets | $ | 4,049,089 | $ | 4,272,121 | $ | 3,303,989 |
| Liabilities and equity | ||||||
| Current liabilities: | ||||||
| Short-term debt (Note 4) | $ | 757,271 | $ | 403,703 | $ | 96,071 |
| Trade and other payables | 547,169 | 957,683 | 503,892 | |||
| Customer prepayments and deferred revenue | 58,155 | 180,160 | 45,734 | |||
| Commodity derivative liabilities – current (Note 5) | 90,366 | 146,990 | 65,186 | |||
| Current maturities of long-term debt (Note 4) | 56,582 | 75,475 | 68,477 | |||
| Accrued expenses and other current liabilities | 181,015 | 167,671 | 147,422 | |||
| Total current liabilities | 1,690,558 | 1,931,682 | 926,782 | |||
| Long-term lease liabilities | 41,852 | 37,177 | 41,061 | |||
| Long-term debt, less current maturities (Note 4) | 866,454 | 916,540 | 975,973 | |||
| Deferred income taxes | 173,212 | 170,147 | 162,475 | |||
| Other long-term liabilities | 52,049 | 55,915 | 65,615 | |||
| Total liabilities | 2,824,125 | 3,111,461 | 2,171,906 | |||
| Commitments and contingencies (Note 13) | ||||||
| Shareholders’ equity: | ||||||
| Common shares, without par value (63,000 shares authorized; 33,786, 33,599 and 33,599 shares issued at 6/30/2021, 12/31/2020 and 6/30/2020, respectively) | 140 | 138 | 138 | |||
| Preferred shares, without par value (1,000 shares authorized; none issued) | — | — | — | |||
| Additional paid-in-capital | 357,606 | 348,714 | 343,730 | |||
| Treasury shares, at cost (111, 45 and 40 shares at 6/30/2021, 12/31/2020 and 6/30/2020, respectively) | (2,650) | (966) | (953) | |||
| Accumulated other comprehensive loss | (1,837) | (12,076) | (26,245) | |||
| Retained earnings | 669,241 | 626,081 | 622,718 | |||
| Total shareholders’ equity of The Andersons, Inc. | 1,022,500 | 961,891 | 939,388 | |||
| Noncontrolling interests | 202,464 | 198,769 | 192,695 | |||
| Total equity | 1,224,964 | 1,160,660 | 1,132,083 | |||
| Total liabilities and equity | $ | 4,049,089 | $ | 4,272,121 | $ | 3,303,989 |
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q2 2021 Form 10-Q | 1
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The Andersons, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)(In thousands, except per share data)
| Three months ended June 30, | Six months ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||
| Sales and merchandising revenues (Note 6) | $ | 3,273,726 | $ | 1,890,180 | $ | 5,909,455 | $ | 3,743,286 |
| Cost of sales and merchandising revenues | 3,099,682 | 1,783,914 | 5,612,699 | 3,573,890 | ||||
| Gross profit | 174,044 | 106,266 | 296,756 | 169,396 | ||||
| Operating, administrative and general expenses | 109,976 | 90,136 | 209,848 | 195,196 | ||||
| Interest expense, net | 13,454 | 11,827 | 26,623 | 27,414 | ||||
| Other income, net: | ||||||||
| Equity in earnings of affiliates, net | 845 | 79 | 2,639 | 209 | ||||
| Other income, net | 5,307 | 3,450 | 12,849 | 8,263 | ||||
| Income (loss) before income taxes | 56,766 | 7,832 | 75,773 | (44,742) | ||||
| Income tax provision (benefit) | 10,642 | (12,200) | 16,387 | (13,664) | ||||
| Net income (loss) | 46,124 | 20,032 | 59,386 | (31,078) | ||||
| Net income (loss) attributable to noncontrolling interests | 2,625 | (10,407) | 780 | (23,856) | ||||
| Net income (loss) attributable to The Andersons, Inc. | $ | 43,499 | $ | 30,439 | $ | 58,606 | $ | (7,222) |
| Per common share: | ||||||||
| Basic earnings (loss) attributable to The Andersons, Inc. common shareholders (Note 9) | $ | 1.31 | $ | 0.92 | $ | 1.76 | $ | (0.22) |
| Diluted earnings (loss) attributable to The Andersons, Inc. common shareholders (Note 9) | $ | 1.30 | $ | 0.92 | $ | 1.74 | $ | (0.22) |
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q2 2021 Form 10-Q | 2
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The Andersons, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)(In thousands)
| Three months ended June 30, | Six months ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||
| Net income (loss) | $ | 46,124 | $ | 20,032 | $ | 59,386 | $ | (31,078) |
| Other comprehensive income (loss), net of tax: | ||||||||
| Change in unrecognized actuarial gain (loss) and prior service cost | (234) | 15 | (337) | (101) | ||||
| Foreign currency translation adjustments | 1,469 | 3,249 | 2,693 | (3,390) | ||||
| Cash flow hedge activity | (1,858) | (1,860) | 7,883 | (15,523) | ||||
| Other comprehensive income (loss) | (623) | 1,404 | 10,239 | (19,014) | ||||
| Comprehensive income (loss) | 45,501 | 21,436 | 69,625 | (50,092) | ||||
| Comprehensive income (loss) attributable to the noncontrolling interests | 2,625 | (10,407) | 780 | (23,856) | ||||
| Comprehensive income (loss) attributable to The Andersons, Inc. | $ | 42,876 | $ | 31,843 | $ | 68,845 | $ | (26,236) |
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q2 2021 Form 10-Q | 3
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The Andersons, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)(In thousands)
| Six months ended June 30, | ||||
|---|---|---|---|---|
| 2021 | 2020 | |||
| Operating Activities | ||||
| Net income (loss) | $ | 59,386 | $ | (31,078) |
| Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities: | ||||
| Depreciation and amortization | 95,154 | 93,898 | ||
| Bad debt (recovery) expense, net | (1,156) | 6,290 | ||
| Equity in earnings of affiliates, net of dividends | (2,639) | (209) | ||
| Gain on sales of Rail assets and related leases, net | (4,987) | (569) | ||
| (Gain) loss on sales of assets, net | (1,266) | 341 | ||
| Stock-based compensation expense | 4,112 | 5,016 | ||
| Deferred federal income tax | 170 | 21,761 | ||
| Inventory write down | 2,599 | 10,922 | ||
| Other | 2,971 | 2,797 | ||
| Changes in operating assets and liabilities: | ||||
| Accounts receivable | (58,338) | (9,181) | ||
| Inventories | 390,506 | 536,951 | ||
| Commodity derivatives | (250,691) | 14,980 | ||
| Other assets | 35,568 | (24,784) | ||
| Payables and other accrued expenses | (516,883) | (481,624) | ||
| Net cash (used in) provided by operating activities | (245,494) | 145,511 | ||
| Investing Activities | ||||
| Purchases of Rail assets | (4,751) | (24,649) | ||
| Proceeds from sale of Rail assets | 15,616 | 4,637 | ||
| Purchases of property, plant and equipment and capitalized software | (34,264) | (44,644) | ||
| Proceeds from sale of assets | 3,794 | 1,503 | ||
| Purchase of investments | (4,701) | (2,849) | ||
| Other | 832 | — | ||
| Net cash used in investing activities | (23,474) | (66,002) | ||
| Financing Activities | ||||
| Net borrowings (payments) under lines of credit | (258,157) | (47,564) | ||
| Proceeds from issuance of short-term debt | 608,250 | — | ||
| Proceeds from issuance of long-term debt | 108,300 | 165,975 | ||
| Payments of long-term debt | (177,586) | (203,835) | ||
| Contributions from noncontrolling interest owner | 2,940 | 4,409 | ||
| Distributions to noncontrolling interest owner | (25) | (10,298) | ||
| Payments of debt issuance costs | (2,059) | (250) | ||
| Dividends paid | (11,677) | (11,469) | ||
| Other | (2,436) | (2,036) | ||
| Net cash provided by (used in) financing activities | 267,550 | (105,068) | ||
| Effect of exchange rates on cash and cash equivalents | (167) | 675 | ||
| Decrease in cash and cash equivalents | (1,585) | (24,884) | ||
| Cash and cash equivalents at beginning of period | 29,123 | 54,895 | ||
| Cash and cash equivalents at end of period | $ | 27,538 | $ | 30,011 |
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q2 2021 Form 10-Q | 4
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The Andersons, Inc.
Condensed Consolidated Statements of Equity
(Unaudited)(In thousands, except per share data)
| Additional<br>Paid-in<br>Capital | Treasury<br>Shares | Accumulated<br>Other<br>Comprehensive Income<br>(Loss) | Retained<br>Earnings | Noncontrolling<br>Interests | Total | ||||||||
| Balance at March 31, 2020 | 137 | $ | 341,382 | $ | (652) | $ | (27,649) | $ | 599,039 | $ | 201,605 | $ | 1,113,862 |
| Net income (loss) | 30,439 | (10,407) | 20,032 | ||||||||||
| Other comprehensive loss | (234) | (234) | |||||||||||
| Amounts reclassified from accumulated other comprehensive income | 1,638 | 1,638 | |||||||||||
| Contributions from noncontrolling interests | 1,102 | 1,102 | |||||||||||
| Noncontrolling interests recognized in connection with business combination | (459) | 395 | (64) | ||||||||||
| Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of 0 (20 shares) | 2,807 | (454) | (843) | 1,511 | |||||||||
| Dividends declared (0.175 per common share) | (5,764) | (5,764) | |||||||||||
| Restricted share award dividend equivalents | 153 | (153) | — | ||||||||||
| Balance at June 30, 2020 | 138 | $ | 343,730 | $ | (953) | $ | (26,245) | $ | 622,718 | $ | 192,695 | $ | 1,132,083 |
| Balance at March 31, 2021 | 140 | $ | 355,961 | $ | (2,872) | $ | (1,214) | $ | 631,652 | $ | 198,884 | $ | 1,182,551 |
| Net income (loss) | 43,499 | 2,625 | 46,124 | ||||||||||
| Other comprehensive loss | (2,108) | (2,108) | |||||||||||
| Amounts reclassified from accumulated other comprehensive income | 1,485 | 1,485 | |||||||||||
| Contributions from noncontrolling interests | 980 | 980 | |||||||||||
| Distributions to noncontrolling interests | (25) | (25) | |||||||||||
| Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of 0 (11 shares) | 1,645 | 138 | 1,783 | ||||||||||
| Dividends declared (0.175 per common share) | (5,826) | (5,826) | |||||||||||
| Restricted share award dividend equivalents | 84 | (84) | — | ||||||||||
| Balance at June 30, 2021 | 140 | $ | 357,606 | $ | (2,650) | $ | (1,837) | $ | 669,241 | $ | 202,464 | $ | 1,224,964 |
All values are in US Dollars.
The Andersons, Inc. | Q2 2021 Form 10-Q | 5
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| Additional<br>Paid-in<br>Capital | Treasury<br>Shares | Accumulated<br>Other<br>Comprehensive Income<br>(Loss) | Retained<br>Earnings | Noncontrolling<br>Interests | Total | ||||||||
| Balance at December 31, 2019 | 137 | $ | 345,359 | $ | (7,342) | $ | (7,231) | $ | 642,687 | $ | 222,045 | $ | 1,195,655 |
| Net income (loss) | (7,222) | (23,856) | (31,078) | ||||||||||
| Other comprehensive loss | (21,208) | (21,208) | |||||||||||
| Amounts reclassified from accumulated other comprehensive income | 2,194 | 2,194 | |||||||||||
| Contributions from noncontrolling interests | 4,409 | 4,409 | |||||||||||
| Distributions to noncontrolling interests | (10,298) | (10,298) | |||||||||||
| Noncontrolling interests recognized in connection with business combination | (459) | 395 | (64) | ||||||||||
| Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of 0 (167 shares) | (1,170) | 5,998 | (843) | 3,986 | |||||||||
| Dividends declared (0.350 per common share) | (11,513) | (11,513) | |||||||||||
| Restricted share award dividend equivalents | 391 | (391) | — | ||||||||||
| Balance at June 30, 2020 | 138 | $ | 343,730 | $ | (953) | $ | (26,245) | $ | 622,718 | $ | 192,695 | $ | 1,132,083 |
| Balance at December 31, 2020 | 138 | $ | 348,714 | $ | (966) | $ | (12,076) | $ | 626,081 | $ | 198,769 | $ | 1,160,660 |
| Net income (loss) | 58,606 | 780 | 59,386 | ||||||||||
| Other comprehensive income | 7,311 | 7,311 | |||||||||||
| Amounts reclassified from accumulated other comprehensive income | 2,928 | 2,928 | |||||||||||
| Contributions from noncontrolling interests | 2,940 | 2,940 | |||||||||||
| Distributions to noncontrolling interests | (25) | (25) | |||||||||||
| Stock awards, stock option exercises and other shares issued to employees and directors, net of income tax of 0 (67 shares) | 8,892 | (2,016) | (3,480) | 3,398 | |||||||||
| Dividends declared (0.350 per common share) | (11,634) | (11,634) | |||||||||||
| Restricted share award dividend equivalents | 332 | (332) | — | ||||||||||
| Balance at June 30, 2021 | 140 | $ | 357,606 | $ | (2,650) | $ | (1,837) | $ | 669,241 | $ | 202,464 | $ | 1,224,964 |
All values are in US Dollars.
See Notes to Condensed Consolidated Financial Statements
The Andersons, Inc. | Q2 2021 Form 10-Q | 6
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The Andersons, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
- Basis of Presentation and Consolidation
These Condensed Consolidated Financial Statements include the accounts of The Andersons, Inc. and its wholly owned and controlled subsidiaries (the “Company”). Controlled subsidiaries include majority-owned subsidiaries and variable interest entities (“VIEs”) of which the Company is the primary beneficiary. The portion of these entities that is not owned by the Company is presented as noncontrolling interests. All intercompany accounts and transactions are eliminated in consolidation.
Investments in unconsolidated entities in which the Company has significant influence, but not control, are accounted for using the equity method of accounting.
In the opinion of management, all adjustments consisting of normal and recurring items considered necessary for the fair presentation of the results of operations, financial position, and cash flows for the periods indicated have been made. The results in these Condensed Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021. An unaudited Condensed Consolidated Balance Sheet as of June 30, 2020 has been included as the Company operates in several seasonal industries.
The Condensed Consolidated Balance Sheet data at December 31, 2020 was derived from the audited Consolidated Financial Statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in The Andersons, Inc. Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”).
Recently Adopted Accounting Pronouncements
Simplified Accounting for Income Taxes
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update 2019-12. The new standard simplifies accounting for income taxes, including guidance relating to the approach for calculating income taxes in an interim period, intraperiod tax allocation, and the recognition of deferred tax liabilities among other items. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. The new standard does not have a material impact to the company’s financial statements or disclosures.
- Inventories
Major classes of inventories are presented below. Readily Marketable Inventories ("RMI") are agricultural commodity inventories such as corn, soybeans, wheat, and ethanol co-products, among others, carried at net realizable value which approximates fair value based on their commodity characteristics, widely available markets, and pricing mechanisms. The net realizable value of RMI is calculated as the fair value (spot price of the commodity in an exchange), less cost of disposal and transportation based on the local market. All other inventories are held at lower of cost or net realizable value.
| (in thousands) | June 30,<br>2021 | December 31,<br>2020 | June 30,<br>2020 | |||
|---|---|---|---|---|---|---|
| Grain and other agricultural products (a) | $ | 636,380 | $ | 1,025,809 | $ | 452,339 |
| Frac sand and propane (a) | 11,265 | 12,477 | 6,498 | |||
| Ethanol and co-products (a) | 155,993 | 114,895 | 63,195 | |||
| Plant nutrients and cob products | 101,286 | 139,885 | 87,346 | |||
| Railcar repair parts | 7,375 | 7,627 | 6,945 | |||
| Total Inventories | $ | 912,299 | $ | 1,300,693 | $ | 616,323 |
(a) Includes RMI of $612.2 million, $983.2 million and $418.0 million at June 30, 2021, December 31, 2020 and June 30, 2020, respectively.
The Andersons, Inc. | Q2 2021 Form 10-Q | 7
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Inventories do not include 1.2 million, 3.0 million and 1.7 million bushels of grain held in storage for others as of June 30, 2021, December 31, 2020 and June 30, 2020, respectively. The Company does not have title to the grain and is only liable for any deficiencies in grade or shortage of quantity that may arise during the storage period. Management has not experienced historical losses on any deficiencies and does not anticipate material losses in the future.
Lower of cost or net realizable value charges were $2.6 million and $10.9 million for the six months ended June 30, 2021 and June 30, 2020, respectively. The charge in the prior year was a result of lower ethanol market prices and decreased demand as a result of the COVID-19 pandemic.
- Property, Plant and Equipment
The components of Property, plant and equipment, net are as follows:
| (in thousands) | June 30,<br>2021 | December 31,<br>2020 | June 30,<br>2020 | |||
|---|---|---|---|---|---|---|
| Land | $ | 39,884 | $ | 40,222 | $ | 40,188 |
| Land improvements and leasehold improvements | 97,454 | 96,700 | 96,028 | |||
| Buildings and storage facilities | 386,832 | 387,992 | 377,652 | |||
| Machinery and equipment | 948,517 | 925,074 | 881,144 | |||
| Construction in progress | 19,987 | 19,725 | 35,982 | |||
| 1,492,674 | 1,469,713 | 1,430,994 | ||||
| Less: accumulated depreciation | 650,912 | 590,534 | 524,977 | |||
| Property, plant and equipment, net | $ | 841,762 | $ | 879,179 | $ | 906,017 |
Depreciation expense on property, plant and equipment was $64.2 million and $62.3 million for the six months ended June 30, 2021 and 2020, respectively. Additionally, depreciation expense on property, plant and equipment was $32.3 million and $31.2 million for the three months ended June 30, 2021 and 2020, respectively.
Rail Assets
The components of Rail assets leased to others are as follows:
| (in thousands) | June 30,<br>2021 | December 31,<br>2020 | June 30,<br>2020 | |||
|---|---|---|---|---|---|---|
| Rail assets leased to others | $ | 735,255 | $ | 750,473 | $ | 742,107 |
| Less: accumulated depreciation | 160,670 | 158,527 | 149,286 | |||
| Rail assets, net | $ | 574,585 | $ | 591,946 | $ | 592,821 |
Depreciation expense on Rail assets leased to others amounted to $15.3 million and $15.4 million for the six months ended June 30, 2021 and 2020, respectively. Additionally, depreciation expense on Rail assets leased to others amounted to $7.6 million and $7.7 million for the three months ended June 30, 2021 and 2020, respectively.
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- Debt
Short-term and long-term debt at June 30, 2021, December 31, 2020 and June 30, 2020 consisted of the following:
| (in thousands) | June 30,<br>2021 | December 31,<br>2020 | June 30,<br>2020 | |||
|---|---|---|---|---|---|---|
| Short-term debt – non-recourse | $ | 120,020 | $ | 93,192 | $ | 43,284 |
| Short-term debt – recourse | 637,251 | 310,511 | 52,787 | |||
| Total short-term debt | $ | 757,271 | $ | 403,703 | $ | 96,071 |
| Current maturities of long-term debt – non-recourse | $ | 9,078 | $ | 6,438 | $ | 4,845 |
| Current maturities of long-term debt – recourse | 47,504 | 69,037 | 63,632 | |||
| Total current maturities of long-term debt | $ | 56,582 | $ | 75,475 | $ | 68,477 |
| Long-term debt, less: current maturities – non-recourse | $ | 116,219 | $ | 143,406 | $ | 325,819 |
| Long-term debt, less: current maturities – recourse | 750,235 | 773,134 | 650,154 | |||
| Total long-term debt, less: current maturities | $ | 866,454 | $ | 916,540 | $ | 975,973 |
On February 4, 2021, the Company completed the second amendment to its credit agreement dated January 11, 2019. The amendment, which replaced an underwritten bridge loan received on January 21, 2021, provided for a short-term $250 million term note in which the entire stated principal is due on December 31, 2021. The term note bears interest at variable rates, which are based on LIBOR plus an applicable spread.
On May 6, 2021, the Company completed the third amendment to its credit agreement dated January 11, 2019. The amendment provides for a short term note of approximately $358 million in which the entire stated principal is due on March 31, 2022. The term note will bear interest at variable rates, which are based on LIBOR plus an applicable spread.
The total borrowing capacity of the Company's lines of credit at June 30, 2021 was $1,404.6 million of which the Company had a total of $1,173.5 million available for borrowing under its lines of credit. The Company's borrowing capacity is reduced by a combination of outstanding borrowings and letters of credit.
As of June 30, 2021, December 31, 2020 and June 30, 2020, the estimated fair value of long-term debt, including the current portion, was $946.8 million, $1,026.8 million and $1,090.1 million, respectively. The Company estimates the fair value of its long-term debt based upon the Company’s credit standing and current interest rates offered to the Company on similar bonds and rates currently available to the Company for long-term borrowings with similar terms and remaining maturities.
The Company is in compliance with all financial covenants as of June 30, 2021.
- Derivatives
The Company’s operating results are affected by changes to commodity prices. The Trade and Ethanol businesses have established “unhedged” futures position limits (the amount of a commodity, either owned or contracted for, that does not have an offsetting derivative contract to lock in the price). To reduce the exposure to market price risk on commodities owned and forward purchase and sale contracts, the Company enters into exchange traded commodity futures and options contracts and over-the-counter forward and option contracts with various counterparties. These contracts are primarily traded via regulated commodity exchanges. The Company’s forward purchase and sales contracts are for physical delivery of the commodity in a future period. Contracts to purchase commodities from producers generally relate to the current or future crop years for delivery periods quoted by regulated commodity exchanges. Most contracts for the sale of commodities to processors or other commercial consumers generally do not extend beyond one year.
The Andersons, Inc. | Q2 2021 Form 10-Q | 9
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Most of these contracts meet the definition of derivatives. While the Company considers its commodity contracts to be effective economic hedges, the Company does not designate or account for its commodity contracts as hedges as defined under current accounting standards. The Company primarily accounts for its commodity derivatives at estimated fair value. The estimated fair value of the commodity derivative contracts that require the receipt or posting of cash collateral is recorded on a net basis (offset against cash collateral posted or received, also known as margin deposits) within commodity derivative assets or liabilities. Management determines fair value based on exchange-quoted prices and in the case of its forward purchase and sale contracts, estimated fair value is adjusted for differences in local markets and non-performance risk. For contracts for which physical delivery occurs, balance sheet classification is based on estimated delivery date. For futures, options and over-the-counter contracts in which physical delivery is not expected to occur but, rather, the contract is expected to be net settled, the Company classifies these contracts as current or noncurrent assets or liabilities, as appropriate, based on the Company’s expectations as to when such contracts will be settled.
Realized and unrealized gains and losses in the value of commodity contracts (whether due to changes in commodity prices, changes in performance or credit risk, or due to sale, maturity or extinguishment of the commodity contract) and commodity inventories are included in cost of sales and merchandising revenues.
Generally accepted accounting principles permit a party to a master netting arrangement to offset fair value amounts recognized for derivative instruments against the right to reclaim cash collateral or obligation to return cash collateral under the same master netting arrangement. The Company has master netting arrangements for its exchange traded futures and options contracts and certain over-the-counter contracts. When the Company enters into a future, option or an over-the-counter contract, an initial margin deposit may be required by the counterparty. The amount of the margin deposit varies by commodity. If the market price of a future, option or an over-the-counter contract moves in a direction that is adverse to the Company’s position, an additional margin deposit, called a maintenance margin, is required. The margin deposit assets and liabilities are included in short-term commodity derivative assets or liabilities, as appropriate, in the Condensed Consolidated Balance Sheets.
The following table presents at June 30, 2021, December 31, 2020 and June 30, 2020, a summary of the estimated fair value of the Company’s commodity derivative instruments that require cash collateral and the associated cash posted/received as collateral. The net asset or liability positions of these derivatives (net of their cash collateral) are determined on a counterparty-by-counterparty basis and are included within current or non-current commodity derivative assets (or liabilities) on the Condensed Consolidated Balance Sheets:
| (in thousands) | June 30, 2021 | December 31, 2020 | June 30, 2020 | |||
|---|---|---|---|---|---|---|
| Cash collateral paid | $ | 219,469 | $ | 208,670 | $ | 799 |
| Fair value of derivatives | (180,842) | (157,301) | 21,363 | |||
| Net derivative asset position | $ | 38,627 | $ | 51,369 | $ | 22,162 |
The following table presents, on a gross basis, current and non-current commodity derivative assets and liabilities:
| June 30, 2021 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | Commodity Derivative Assets - Current | Commodity Derivative Assets - Noncurrent | Commodity Derivative Liabilities - Current | Commodity Derivative Liabilities - Noncurrent | Total | |||||
| Commodity derivative assets | $ | 547,186 | $ | 16,480 | $ | 34,327 | $ | 423 | $ | 598,416 |
| Commodity derivative liabilities | (259,507) | (873) | (124,693) | (3,874) | (388,947) | |||||
| Cash collateral paid | 219,469 | — | — | — | 219,469 | |||||
| Balance sheet line item totals | $ | 507,148 | $ | 15,607 | $ | (90,366) | $ | (3,451) | $ | 428,938 |
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| December 31, 2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | Commodity Derivative Assets - Current | Commodity Derivative Assets - Noncurrent | Commodity Derivative Liabilities - Current | Commodity Derivative Liabilities - Noncurrent | Total | |||||
| Commodity derivative assets | $ | 304,533 | $ | 4,328 | $ | 19,386 | $ | 14 | $ | 328,261 |
| Commodity derivative liabilities | (192,023) | (348) | (166,850) | (243) | (359,464) | |||||
| Cash collateral paid | 208,196 | — | 474 | — | 208,670 | |||||
| Balance sheet line item totals | $ | 320,706 | $ | 3,980 | $ | (146,990) | $ | (229) | $ | 177,467 |
| June 30, 2020 | ||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (in thousands) | Commodity Derivative Assets - Current | Commodity Derivative Assets - Noncurrent | Commodity Derivative Liabilities - Current | Commodity Derivative Liabilities - Noncurrent | Total | |||||
| Commodity derivative assets | $ | 142,110 | $ | 2,916 | $ | 5,511 | $ | 124 | $ | 150,661 |
| Commodity derivative liabilities | (30,820) | (214) | (70,697) | (3,813) | (105,544) | |||||
| Cash collateral paid | 799 | — | — | — | 799 | |||||
| Balance sheet line item totals | $ | 112,089 | $ | 2,702 | $ | (65,186) | $ | (3,689) | $ | 45,916 |
The net pre-tax gains and losses on commodity derivatives not designated as hedging instruments included in the Company’s Condensed Consolidated Statements of Operations and the line item in which they are located for the three and six months ended June 30, 2021 and 2020 are as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||
| Gains on commodity derivatives included in cost of sales and merchandising revenues | $ | 73,688 | $ | 8,797 | $ | 240,673 | $ | 39,757 |
The Andersons, Inc. | Q2 2021 Form 10-Q | 11
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The Company had the following volume of commodity derivative contracts outstanding (on a gross basis) at June 30, 2021, December 31, 2020 and June 30, 2020:
| June 30, 2021 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | Number of Bushels | Number of Gallons | Number of Pounds | Number of Tons | ||||||
| Non-exchange traded: | ||||||||||
| Corn | 696,674 | — | — | — | ||||||
| Soybeans | 75,507 | — | — | — | ||||||
| Wheat | 129,264 | — | — | — | ||||||
| Oats | 45,810 | — | — | — | ||||||
| Ethanol | — | 198,316 | — | — | ||||||
| Corn oil | — | — | 70,637 | — | ||||||
| Soybean Oil | — | — | 23,952 | — | ||||||
| Other | 7,803 | 3,957 | 2,757 | 1,925 | ||||||
| Subtotal | 955,058 | 202,273 | 97,346 | 1,925 | ||||||
| Exchange traded: | ||||||||||
| Corn | 243,190 | — | — | — | ||||||
| Soybeans | 49,375 | — | — | — | ||||||
| Wheat | 80,004 | — | — | — | ||||||
| Oats | 1,430 | — | — | — | ||||||
| Ethanol | — | 112,812 | — | — | ||||||
| Propane | — | 18,480 | — | — | ||||||
| Other | — | 5 | 2,351 | 197 | ||||||
| Subtotal | 373,999 | 131,297 | 2,351 | 197 | ||||||
| Total | 1,329,057 | 333,570 | 99,697 | 2,122 | December 31, 2020 | |||||
| --- | --- | --- | --- | --- | ||||||
| (in thousands) | Number of Bushels | Number of Gallons | Number of Pounds | Number of Tons | ||||||
| Non-exchange traded: | ||||||||||
| Corn | 684,654 | — | — | — | ||||||
| Soybeans | 73,521 | — | — | — | ||||||
| Wheat | 109,661 | — | — | — | ||||||
| Oats | 27,482 | — | — | — | ||||||
| Ethanol | — | 124,795 | — | — | ||||||
| Corn oil | — | — | 36,015 | — | ||||||
| Soybean oil | — | — | 26,510 | — | ||||||
| Other | 4,371 | 2,058 | 740 | 1,859 | ||||||
| Subtotal | 899,689 | 126,853 | 63,265 | 1,859 | ||||||
| Exchange traded: | ||||||||||
| Corn | 267,792 | — | — | — | ||||||
| Soybeans | 53,730 | — | — | — | ||||||
| Wheat | 80,733 | — | — | — | ||||||
| Oats | 1,800 | — | — | — | ||||||
| Ethanol | — | 73,584 | — | — | ||||||
| Propane | — | 17,094 | — | — | ||||||
| Other | — | 2,898 | 14 | 149 | ||||||
| Subtotal | 404,055 | 93,576 | 14 | 149 | ||||||
| Total | 1,303,744 | 220,429 | 63,279 | 2,008 |
The Andersons, Inc. | Q2 2021 Form 10-Q | 12
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| June 30, 2020 | ||||
|---|---|---|---|---|
| (in thousands) | Number of Bushels | Number of Gallons | Number of Pounds | Number of Tons |
| Non-exchange traded: | ||||
| Corn | 437,275 | — | — | — |
| Soybeans | 50,012 | — | — | — |
| Wheat | 95,133 | — | — | — |
| Oats | 49,053 | — | — | — |
| Ethanol | — | 141,549 | — | — |
| Corn oil | — | — | 8,098 | — |
| Other | 25,005 | 5,000 | 415 | 2,370 |
| Subtotal | 656,478 | 146,549 | 8,513 | 2,370 |
| Exchange traded: | ||||
| Corn | 287,840 | — | — | — |
| Soybeans | 36,970 | — | — | — |
| Wheat | 67,040 | — | — | — |
| Oats | 685 | — | — | — |
| Ethanol | — | 27,300 | — | — |
| Propane | — | 28,602 | — | — |
| Other | — | 13,650 | 340 | 208 |
| Subtotal | 392,535 | 69,552 | 340 | 208 |
| Total | 1,049,013 | 216,101 | 8,853 | 2,578 |
Interest Rate and Other Derivatives
The Company’s objectives for using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The gains or losses on the derivatives designated as hedging instruments are recorded in Other Comprehensive Income (Loss) and subsequently reclassified into interest expense in the same periods during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.
At June 30, 2021, December 31, 2020 and June 30, 2020, the Company had recorded the following amounts for the fair value of the Company's other derivatives:
| (in thousands) | June 30, 2021 | December 31, 2020 | June 30, 2020 | |||
|---|---|---|---|---|---|---|
| Derivatives not designated as hedging instruments | ||||||
| Interest rate contracts included in Accrued expenses and other current liabilities | $ | — | $ | (589) | $ | (1,174) |
| Interest rate contracts included in Other long-term liabilities | (309) | (430) | (553) | |||
| Foreign currency contracts included in Other current assets | 1,523 | 2,753 | 791 | |||
| Derivatives designated as hedging instruments | ||||||
| Interest rate contracts included in Other current assets | $ | 3,849 | $ | 164 | $ | — |
| Interest rate contracts included in Accrued expenses and other current liabilities | (6,944) | (6,664) | (8,806) | |||
| Interest rate contracts included in Other long-term liabilities | (11,506) | (18,539) | (24,388) |
The Andersons, Inc. | Q2 2021 Form 10-Q | 13
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The recording of derivatives gains and losses and the financial statement line in which they are located are as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||
| Derivatives not designated as hedging instruments | ||||||||
| Interest rate derivative gains (losses) included in Interest income (expense), net | $ | 355 | $ | 186 | $ | 709 | $ | (720) |
| Derivatives designated as hedging instruments | ||||||||
| Interest rate derivative losses included in Other comprehensive income (loss) | 2,471 | (2,475) | $ | (10,476) | $ | (20,657) | ||
| Interest rate derivatives losses included in Interest income (expense), net | $ | (1,656) | $ | (1,917) | (3,273) | (2,700) |
Outstanding interest rate derivatives, as of June 30, 2021, are as follows:
| Interest Rate Hedging Instrument | Year Entered | Year of Maturity | Initial Notional Amount <br>(in millions) | Description | Interest Rate | |
|---|---|---|---|---|---|---|
| Long-term | ||||||
| Swap | 2014 | 2023 | $ | 23.0 | Interest rate component of debt - not accounted for as a hedge | 1.9% |
| Swap | 2017 | 2022 | $ | 20.0 | Interest rate component of debt - accounted for as a hedge | 1.8% |
| Swap | 2018 | 2023 | $ | 10.0 | Interest rate component of debt - accounted for as a hedge | 2.6% |
| Swap | 2018 | 2025 | $ | 20.0 | Interest rate component of debt - accounted for as a hedge | 2.7% |
| Swap | 2019 | 2025 | $ | 100.0 | Interest rate component of debt - accounted for as a hedge | 2.5% |
| Swap | 2019 | 2025 | $ | 50.0 | Interest rate component of debt - accounted for as a hedge | 2.5% |
| Swap | 2019 | 2025 | $ | 50.0 | Interest rate component of debt - accounted for as a hedge | 2.5% |
| Swap | 2020 | 2023 | $ | 50.0 | Interest rate component of debt - accounted for as a hedge | 0.0% to 0.8% |
| Swap | 2020 | 2023 | $ | 50.0 | Interest rate component of debt - accounted for as a hedge | 0.0% to 0.7% |
| Swap | 2020 | 2030 | $ | 50.0 | Interest rate component of debt - accounted for as a hedge | 0.0% to 0.8% |
| Swap | 2020 | 2030 | $ | 50.0 | Interest rate component of debt - accounted for as a hedge | 0.0% to 0.8% |
- Revenue
Many of the Company’s revenues are generated from contracts that are outside the scope of Accounting Standard Codification ("ASC") 606 and thus are accounted for under other accounting standards. Specifically, many of the Company's Trade and Ethanol sales contracts are derivatives under ASC 815, Derivatives and Hedging and the Rail leasing revenue is accounted for under ASC 842, Leases. The breakdown of revenues between ASC 606 and other standards are as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||
| Revenues under ASC 606 | $ | 640,083 | $ | 459,105 | $ | 1,146,551 | $ | 806,607 |
| Revenues under ASC 815 | 2,611,981 | 1,406,307 | 4,719,603 | 2,886,360 | ||||
| Revenues under ASC 842 | 21,662 | 24,768 | 43,301 | 50,319 | ||||
| Total revenues | $ | 3,273,726 | $ | 1,890,180 | $ | 5,909,455 | $ | 3,743,286 |
The Andersons, Inc. | Q2 2021 Form 10-Q | 14
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The Company's revenues under ASC 842 are as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||
| Operating lease revenue | $ | 20,458 | $ | 23,276 | $ | 41,308 | $ | 47,332 |
| Sales-type lease revenue | 101 | 232 | 202 | 334 | ||||
| Variable lease revenue | 1,103 | 1,260 | 1,791 | 2,653 | ||||
| Total revenues | $ | 21,662 | $ | 24,768 | $ | 43,301 | $ | 50,319 |
The remainder of this note applies only to those revenues that are accounted for under ASC 606.
Disaggregation of revenue
The following tables disaggregate revenues under ASC 606 by major product/service line for the three and six months ended June 30, 2021 and 2020, respectively:
| Three months ended June 30, 2021 | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | Trade | Ethanol | Plant Nutrient | Rail | Total | |||||||||||||||||
| Specialty nutrients | $ | — | $ | — | $ | 84,915 | $ | — | $ | 84,915 | ||||||||||||
| Primary nutrients | — | — | 213,604 | — | 213,604 | |||||||||||||||||
| Services | 2,114 | — | 3,869 | 9,233 | 15,216 | |||||||||||||||||
| Products and co-products | 74,948 | 184,263 | — | — | 259,211 | |||||||||||||||||
| Frac sand and propane | 36,649 | — | — | — | 36,649 | |||||||||||||||||
| Other | 4,037 | 394 | 19,020 | 7,037 | 30,488 | |||||||||||||||||
| Total | $ | 117,748 | $ | 184,657 | $ | 321,408 | $ | 16,270 | $ | 640,083 | Three months ended June 30, 2020 | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||||||||
| (in thousands) | Trade | Ethanol | Plant Nutrient | Rail | Total | |||||||||||||||||
| Specialty nutrients | $ | — | $ | — | $ | 82,634 | $ | — | $ | 82,634 | ||||||||||||
| Primary nutrients | — | — | 188,463 | — | 188,463 | |||||||||||||||||
| Service | 2,357 | — | 2,596 | 8,658 | 13,611 | |||||||||||||||||
| Products and co-products | 63,344 | 75,773 | — | — | 139,117 | |||||||||||||||||
| Frac sand and propane | 21,439 | — | — | — | 21,439 | |||||||||||||||||
| Other | 5,330 | 352 | 6,132 | 2,027 | 13,841 | |||||||||||||||||
| Total | $ | 92,470 | $ | 76,125 | $ | 279,825 | $ | 10,685 | $ | 459,105 | Six months ended June 30, 2021 | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||||||||
| (in thousands) | Trade | Ethanol | Plant Nutrient | Rail | Total | |||||||||||||||||
| Specialty nutrients | $ | — | $ | — | $ | 161,721 | $ | — | $ | 161,721 | ||||||||||||
| Primary nutrients | — | — | 285,263 | — | 285,263 | |||||||||||||||||
| Service | 3,568 | — | 5,158 | 19,177 | 27,903 | |||||||||||||||||
| Products and co-products | 146,936 | 329,907 | — | — | 476,843 | |||||||||||||||||
| Frac sand and propane | 128,714 | — | — | — | 128,714 | |||||||||||||||||
| Other | 6,969 | 4,153 | 38,518 | 16,467 | 66,107 | |||||||||||||||||
| Total | $ | 286,187 | $ | 334,060 | $ | 490,660 | $ | 35,644 | $ | 1,146,551 |
The Andersons, Inc. | Q2 2021 Form 10-Q | 15
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| Six months ended June 30, 2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | Trade | Ethanol | Plant Nutrient | Rail | Total | |||||
| Specialty nutrients | $ | — | $ | — | $ | 155,865 | $ | — | $ | 155,865 |
| Primary nutrients | — | — | 234,153 | — | 234,153 | |||||
| Service | 4,043 | — | 2,778 | 17,394 | 24,215 | |||||
| Products and co-products | 116,509 | 177,472 | — | — | 293,981 | |||||
| Frac sand and propane | 71,314 | — | — | — | 71,314 | |||||
| Other | 9,318 | 968 | 11,942 | 4,851 | 27,079 | |||||
| Total | $ | 201,184 | $ | 178,440 | $ | 404,738 | $ | 22,245 | $ | 806,607 |
Approximately 3% of revenues accounted for under ASC 606 during both three and six months periods ended June 30, 2021 and 2020, respectively, are recorded over time which primarily relates to service revenues noted above.
Contract balances
The balances of the Company’s contract liabilities were $17.0 million and $45.6 million as of June 30, 2021 and December 31, 2020, respectively. The difference between the opening and closing balances of the Company’s contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. The main driver of the contract liabilities balance is payments for primary and specialty nutrients received in advance of fulfilling our performance obligations under our customer contracts. Due to seasonality of this business, contract liabilities were built up at year-end in preparation for the spring application season. As expected the revenue recognized in the current period satisfied the contract liabilities throughout the spring application season.
- Income Taxes
On a quarterly basis, the Company estimates the effective tax rate expected to be applicable for the full year and makes changes, if necessary, based on new information or events. The estimated annual effective tax rate is forecasted based on actual historical information and forward-looking estimates and is used to provide for income taxes in interim reporting periods. The Company also recognizes the tax impact of certain unusual or infrequently occurring items, such as the effects of changes in tax laws or rates and impacts from settlements with tax authorities, discretely in the quarter in which they occur.
For the six months ended June 30, 2021, the Company estimated its annual effective tax rate utilizing the annualized effective tax rate method under ASC 740, Income Taxes, to calculate its interim income tax provision. For the six months ended June 30, 2020, the Company utilized the discrete effective tax rate method, as allowed under ASC 740, to calculate its interim income tax provision. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it was the annual period and determines the income tax expense or benefit on that basis. At the time, it was not possible to reliably estimate the annual effective tax rate for the year due to uncertainty created by the COVID-19 pandemic. As a result, relatively small changes in the provision for income taxes in 2020 caused disproportionate changes in the effective tax rate, as compared to 2021.
For the three months ended June 30, 2021, the Company recorded income tax expense of $10.6 million at an effective income tax rate of 18.7%. The annual effective tax rate differs from the statutory U.S. Federal tax rate due to the impacts of state and local taxes and non-deductible compensation, offset by benefits related to the treatment of mark-to-market activity on certain contracts in the Ethanol segment. The change in effective tax rate for the three months ended June 30, 2021 as compared to the same period last year was primarily attributed to the favorable impact of the mark-to-market activity on certain contracts in the Ethanol segment, coupled with additional benefits from the CARES Act in the prior year. For the three months ended June 30, 2020, using the discrete effective tax rate method to calculate the interim tax provision, the Company recorded an income tax benefit of $12.2 million at an effective income tax rate of 155.8%.
The Andersons, Inc. | Q2 2021 Form 10-Q | 16
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For the six months ended June 30, 2021, the Company recorded an income tax expense of $16.4 million at an effective income tax rate of 21.6%. The annual effective tax rate differs from the statutory U.S. Federal tax rate due to the impacts of state and local taxes and non-deductible compensation, offset by benefits related to the treatment of mark-to-market activity on certain contracts in the Ethanol segment. The change in effective tax rate for the six months ended June 30, 2021, as compared to the same period last year was primarily attributed to additional tax benefits from net operating loss carry backs as a result of the CARES Act in the prior year, offset by the favorable impact of the mark-to-market activity on the contracts within the ethanol segment. For the six months ended June 30, 2020, using the discrete effective tax rate method to calculate the interim tax provision, the Company recorded an income tax benefit of $13.7 million at an effective income tax rate of 30.5%.
The 2021 effective tax rate can be affected by variances in the estimates and amounts of taxable income among the various states, entities and activity types, realization of tax credits, adjustments from resolution of tax matters under review, valuation allowances and the Company’s assessment of its liability for uncertain tax positions. The amount of unrecognized tax benefits for uncertain tax positions was $44.4 million and $24.7 million as of June 30, 2021 and June 30, 2020, respectively. The unrecognized tax benefits of $44.4 million include $40.6 million recorded as a reduction of the deferred tax asset and refundable credits associated with the Federal Research and Development Credits.
- Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive income (loss) attributable to the Company for the three and six months ended June 30, 2021 and 2020:
| Three months ended June 30, | Six months ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||
| Currency Translation Adjustment | ||||||||
| Beginning balance | $ | 6,963 | $ | (5,574) | $ | 5,739 | $ | 1,065 |
| Other comprehensive income (loss) before reclassifications | 1,469 | 3,249 | 2,693 | (3,390) | ||||
| Tax effect | — | — | — | — | ||||
| Other comprehensive income (loss), net of tax | 1,469 | 3,249 | 2,693 | (3,390) | ||||
| Ending balance | $ | 8,432 | $ | (2,325) | $ | 8,432 | $ | (2,325) |
| Hedging Adjustment | ||||||||
| Beginning balance | $ | (8,365) | $ | (23,106) | $ | (18,106) | $ | (9,443) |
| Other comprehensive income (loss) before reclassifications | (3,514) | (3,669) | 4,613 | (18,059) | ||||
| Amounts reclassified from accumulated other comprehensive income (loss)(a) | 2,208 | 2,412 | 4,360 | 3,381 | ||||
| Tax effect | (552) | (603) | (1,090) | (845) | ||||
| Other comprehensive income (loss), net of tax | (1,858) | (1,860) | 7,883 | (15,523) | ||||
| Ending balance | $ | (10,223) | $ | (24,966) | $ | (10,223) | $ | (24,966) |
| Pension and Other Postretirement Adjustment | ||||||||
| Beginning balance | $ | (70) | $ | 773 | $ | 33 | $ | 889 |
| Other comprehensive income (loss) before reclassifications | (63) | 186 | 5 | 241 | ||||
| Amounts reclassified from accumulated other comprehensive income (loss)(b) | (228) | (228) | (456) | (456) | ||||
| Tax effect | 57 | 57 | 114 | 114 | ||||
| Other comprehensive income (loss), net of tax | (234) | 15 | (337) | (101) | ||||
| Ending balance | $ | (304) | $ | 788 | $ | (304) | $ | 788 |
| Investments in Convertible Preferred Securities Adjustment | ||||||||
| Beginning balance | $ | 258 | $ | 258 | $ | 258 | $ | 258 |
| Other comprehensive income (loss), net of tax | — | — | — | — | ||||
| Ending balance | $ | 258 | $ | 258 | $ | 258 | $ | 258 |
| Total AOCI Ending Balance | $ | (1,837) | $ | (26,245) | $ | (1,837) | $ | (26,245) |
(a) Amounts reclassified from gain (loss) on cash flow hedges are reclassified from AOCI to income when the hedged item affects earnings and is recognized in Interest expense, net. See Note 5 for additional information.
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(b) This accumulated other comprehensive loss component is included in the computation of net periodic benefit cost recorded in Operating, administrative and general expenses.
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- Earnings Per Share
| (in thousands, except per common share data) | Three months ended June 30, | Six months ended June 30, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||||||
| Numerator: | ||||||||||||
| Net income (loss) available to The Andersons Inc. common shareholders | $ | 43,499 | $ | 30,439 | $ | 58,606 | $ | (7,222) | ||||
| Denominator: | ||||||||||||
| Weighted average shares outstanding – basic | 33,263 | 32,932 | 33,226 | 32,876 | ||||||||
| Effect of dilutive awards | 316 | 77 | 391 | — | ||||||||
| Weighted average shares outstanding – diluted | 33,579 | 33,009 | 33,617 | 32,876 | ||||||||
| Earnings (loss) per share | ||||||||||||
| Basic | $ | 1.31 | $ | 0.92 | $ | 1.76 | $ | (0.22) | ||||
| Diluted | $ | 1.30 | $ | 0.92 | $ | 1.74 | $ | (0.22) |
There were 57 thousand and 471 thousand antidilutive awards for the three months ended June 30, 2021 and June 30, 2020, respectively. There were 82 thousand antidilutive share awards outstanding for the six months ended June 30, 2021.
All awards were antidilutive for the six months ended June 30, 2020 as the Company incurred a net loss.
- Fair Value Measurements
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2021, December 31, 2020 and June 30, 2020:
| (in thousands) | June 30, 2021 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Assets (liabilities) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
| Commodity derivatives, net (a) | $ | 38,627 | $ | 390,311 | $ | — | $ | 428,938 | ||||||||||
| Provisionally priced contracts (b) | 32,710 | (25,210) | — | 7,500 | ||||||||||||||
| Convertible preferred securities (c) | — | — | 13,550 | 13,550 | ||||||||||||||
| Other assets and liabilities (d) | 5,373 | (14,909) | — | (9,536) | ||||||||||||||
| Total | $ | 76,710 | $ | 350,192 | $ | 13,550 | $ | 440,452 | (in thousands) | December 31, 2020 | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||||||
| Assets (liabilities) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
| Commodity derivatives, net (a) | $ | 51,369 | $ | 126,098 | $ | — | $ | 177,467 | ||||||||||
| Provisionally priced contracts (b) | 19,793 | (48,818) | — | (29,025) | ||||||||||||||
| Convertible preferred securities (c) | — | — | 8,849 | 8,849 | ||||||||||||||
| Other assets and liabilities (d) | 7,972 | (26,058) | — | (18,086) | ||||||||||||||
| Total | $ | 79,134 | $ | 51,222 | $ | 8,849 | $ | 139,205 | (in thousands) | June 30, 2020 | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||||||
| Assets (liabilities) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
| Commodity derivatives, net (a) | $ | 22,162 | $ | 23,754 | $ | — | $ | 45,916 | ||||||||||
| Provisionally priced contracts (b) | (15,139) | (41,897) | — | (57,036) | ||||||||||||||
| Convertible preferred securities (c) | — | — | 8,654 | 8,654 | ||||||||||||||
| Other assets and liabilities (d) | 4,102 | (34,922) | — | (30,820) | ||||||||||||||
| Total | $ | 11,125 | $ | (53,065) | $ | 8,654 | $ | (33,286) |
(a)Includes associated cash posted/received as collateral
(b)Included in "Provisionally priced contracts" are those instruments based only on underlying futures values (Level 1) and delayed price contracts (Level 2)
(c)Recorded in “Other assets, net” on the Company’s Consolidated Balance Sheets related to certain available for sale securities.
(d)Included in other assets and liabilities are assets held by the Company to fund deferred compensation plans and foreign exchange derivative contracts (Level 1), as well as, interest rate derivatives (Level 2).
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Level 1 commodity derivatives reflect the fair value of the exchanged-traded futures and options contracts that the Company holds, net of the cash collateral, that the Company has in its margin account.
The majority of the Company’s assets and liabilities measured at fair value are based on the market approach valuation technique. With the market approach, fair value is derived using prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
The Company’s net commodity derivatives primarily consist of futures or options contracts via regulated exchanges and contracts with producers or customers under which the future settlement date and bushels (or gallons in the case of ethanol contracts) of commodities to be delivered (primarily wheat, corn, soybeans and ethanol) are fixed and under which the price may or may not be fixed. Depending on the specifics of the individual contracts, the fair value is derived from the futures or options prices quoted on various exchanges for similar commodities and delivery dates as well as observable quotes for local basis adjustments (the difference, which is attributable to local market conditions, between the quoted futures price and the local cash price). Because “basis” for a particular commodity and location typically has multiple quoted prices from other agribusinesses in the same geographical vicinity and is used as a common pricing mechanism in the agribusiness industry, the Company has concluded that “basis” is typically a Level 2 fair value input for purposes of the fair value disclosure requirements related to our commodity derivatives, depending on the specific commodity. Although nonperformance risk, both of the Company and the counterparty, is present in each of these commodity contracts and is a component of the estimated fair values, based on the Company’s historical experience with its producers and customers and the Company’s knowledge of their businesses, the Company does not view nonperformance risk to be a significant input to fair value for these commodity contracts.
These fair value disclosures exclude RMI which consists of agricultural commodity inventories measured at net realizable value. The net realizable value used to measure the Company’s agricultural commodity inventories is the fair value (spot price of the commodity in an exchange), less cost of disposal and transportation based on the local market. This valuation would generally be considered Level 2. The amount of RMI is disclosed in Note 2. Changes in the net realizable value of commodity inventories are recognized as a component of cost of sales and merchandising revenues.
Provisionally priced contract liabilities are those for which the Company has taken ownership and possession of grain, but the final purchase price has not been established. In the case of payables where the unpriced portion of the contract is limited to the futures price of the underlying commodity or the Company has delivered provisionally priced grain and a subsequent payable or receivable is set up for any future changes in the grain price, quoted exchange prices are used and the liability is deemed to be Level 1 in the fair value hierarchy. For all other unpriced contracts which include variable futures and basis components, the amounts recorded for delayed price contracts are determined on the basis of local grain market prices at the balance sheet date and, as such, are deemed to be Level 2 in the fair value hierarchy.
The convertible preferred securities are interests in several early-stage enterprises that may be in various forms, such as convertible debt or preferred equity securities.
A reconciliation of beginning and ending balances for the Company’s fair value measurements using Level 3 inputs is as follows:
| Convertible Preferred Securities | ||||
|---|---|---|---|---|
| (in thousands) | 2021 | 2020 | ||
| Assets at January 1, | $ | 8,849 | $ | 8,404 |
| Additional investments | 2,800 | 250 | ||
| Assets at March 31, | $ | 11,649 | $ | 8,654 |
| Additional Investments | 1,901 | — | ||
| Assets at June 30, | $ | 13,550 | $ | 8,654 |
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The following tables summarize quantitative information about the Company's Level 3 fair value measurements as of June 30, 2021, December 31, 2020 and June 30, 2020:
| Quantitative Information about Recurring Level 3 Fair Value Measurements | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Fair Value as of | |||||||||
| (in thousands) | June 30, 2021 | December 31, 2020 | June 30, 2020 | Valuation Method | Unobservable Input | Weighted Average | |||
| Convertible preferred securities (a) | $ | 13,550 | $ | 8,849 | $ | 8,654 | Implied based on market prices | N/A | N/A |
(a) The Company considers observable price changes and other additional market data available to estimate fair value, including additional capital raising, internal valuation models, progress towards key business milestones, and other relevant market data points.
There were no non-recurring fair value measurements as of June 30, 2021, December 31, 2020 and June 30, 2020.
The fair value of the Company’s cash equivalents, accounts receivable and accounts payable approximate their carrying value as they are close to maturity.
- Related Parties
In the ordinary course of business, and on an arm's length basis, the Company will enter into related party transactions with the minority shareholders of the Company's ethanol operations and several equity method investments that the Company holds, along with other related parties.
The following table sets forth the related party transactions entered into for the time periods presented:
| Three months ended June 30, | Six months ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||
| Sales revenues | $ | 85,294 | $ | 29,659 | $ | 151,940 | $ | 84,353 |
| Purchases of product and capital assets | 8,662 | 6,419 | 20,336 | 21,996 | ||||
| (in thousands) | June 30, 2021 | December 31, 2020 | June 30, 2020 | |||||
| --- | --- | --- | --- | --- | --- | --- | ||
| Accounts receivable (a) | $ | 11,835 | $ | 5,623 | $ | 7,332 | ||
| Accounts payable (b) | 2,287 | 5,251 | 2,598 |
(a) Accounts receivable represents amounts due from related parties for the sale of ethanol and other various items.
(b) Accounts payable represents amounts due to related parties for purchases of ethanol equipment and other various items.
- Segment Information
The Company’s operations include four reportable business segments that are distinguished primarily on the basis of products and services offered as well as the structure of management. The Trade business includes commodity merchandising and the operation of terminal grain elevator facilities. The Ethanol business produces ethanol and co-products through its five co-owned and fully consolidated ethanol production facilities as well as purchases and sells ethanol and ethanol co-products. The Plant Nutrient business manufactures and distributes agricultural inputs, primarily fertilizer, to dealers and farmers, along with turf care and corncob-based products. Rail operations include the leasing, marketing and fleet management of railcars and other assets, railcar repair and metal fabrication. The Other category includes other corporate level costs not attributable to an operating segment and intercompany eliminations between the segments.
The segment information below includes the allocation of expenses shared by one or more operating segments. Although management believes such allocations are reasonable, the operating information does not necessarily reflect how such data might appear if the segments were operated as separate businesses. The Company does not have any customers who represent 10 percent or more of total revenues from external customers.
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| Three months ended June 30, | Six months ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||
| Revenues from external customers | ||||||||
| Trade | $ | 2,297,869 | $ | 1,351,168 | $ | 4,280,377 | $ | 2,729,209 |
| Ethanol | 616,527 | 223,745 | 1,059,486 | 536,784 | ||||
| Plant Nutrient | 321,409 | 279,825 | 490,661 | 404,738 | ||||
| Rail | 37,921 | 35,442 | 78,931 | 72,555 | ||||
| Total | $ | 3,273,726 | $ | 1,890,180 | $ | 5,909,455 | $ | 3,743,286 |
| Three months ended June 30, | Six months ended June 30, | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||
| Income (loss) before income taxes attributable to the Company | ||||||||
| Trade | $ | 13,777 | $ | 393 | $ | 27,632 | $ | (9,591) |
| Ethanol | 23,531 | 868 | 26,457 | (23,108) | ||||
| Plant Nutrient | 23,995 | 19,407 | 32,518 | 18,215 | ||||
| Rail | 3,064 | 2,606 | 7,955 | 3,613 | ||||
| Other | (10,226) | (5,035) | (19,569) | (10,015) | ||||
| Income (loss) before income taxes attributable to the Company | 54,141 | 18,239 | 74,993 | (20,886) | ||||
| Income (loss) attributable to noncontrolling interests | 2,625 | (10,407) | 780 | (23,856) | ||||
| Income (loss) before income taxes | $ | 56,766 | $ | 7,832 | $ | 75,773 | $ | (44,742) |
- Commitments and Contingencies
Litigation activities
The Company is party to litigation, or threats thereof, both as defendant and plaintiff with some regularity, although individual cases that are material in size occur infrequently. As a defendant, the Company establishes reserves for claimed amounts that are considered probable and capable of estimation. If those cases are resolved for lesser amounts, the excess reserves are taken into income and, conversely, if those cases are resolved for larger than the amount the Company has accrued, the Company records additional expense. The Company believes it is unlikely that the results of its current legal proceedings for which it is the defendant, even if unfavorable, will be material. As a plaintiff, amounts that are collected can also result in sudden, non-recurring income.
Litigation results depend upon a variety of factors, including the availability of evidence, the credibility of witnesses, the performance of counsel, the state of the law, and the impressions of judges and jurors, any of which can be critical in importance, yet difficult, if not impossible, to predict. Consequently, cases currently pending, or future matters, may result in unexpected, and non-recurring losses, or income, from time to time. Finally, litigation results are often subject to judicial reconsideration, appeal and further negotiation by the parties, and as a result, the final impact of a particular judicial decision may be unknown for some time or may result in continued reserves to account for the potential of such post-verdict actions.
Specifically, the Company is party to a non-regulatory litigation claim, which is in response to penalties and fines paid to regulatory entities by a previously unconsolidated subsidiary in 2018 for the settlement of matters which focused on certain trading activity. While the Company believes it has meritorious defenses against the suit, the ultimate resolution of the matter could result in a loss in excess of the amount accrued. Given the preliminary status of the claim, the Company does not believe the excess, net of the acquisition-related indemnity, is determinable.
The estimated losses for all other outstanding claims that are considered reasonably possible are not material.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements which relate to future events or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by these forward-looking statements. Such factors include, but are not limited to, the effects on our business from the COVID-19 pandemic and the pace of recovery from the pandemic, economic and political conditions, globally and in the markets we serve, fluctuations in cost and availability of commodities, weather and agricultural conditions, governmental regulations, the effectiveness of our internal control over financial reporting and the unpredictability of existing and possible future litigation. However, it is not possible to predict or identify all such factors. The reader is urged to carefully consider these risks and others, including those risk factors listed under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”). In some cases, the reader can identify forward-looking statements by terminology such as may, anticipates, believes, estimates, predicts, or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. These forward-looking statements relate only to events as of the date on which the statements are made and the Company undertakes no obligation, other than any imposed by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although management believes that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
Critical Accounting Policies and Estimates
Our critical accounting policies and critical accounting estimates, as described in our 2020 Form 10-K, have not materially changed through the second quarter of 2021.
Executive Overview
Our operations are organized, managed and classified into four reportable business segments: Trade, Ethanol, Plant Nutrient, and Rail. Each of these segments is generally based on the nature of products and services offered and aligns with the management structure.
The agricultural commodity-based business is one in which changes in selling prices generally move in relationship to changes in purchase prices. Therefore, increases or decreases in prices of the agricultural commodities that the business deals in will have a relatively equal impact on sales and cost of sales and a much less significant impact on gross profit. As a result, changes in sales between periods may not necessarily be indicative of the overall performance of the business and more focus should be placed on changes in gross profit.
The Company has considered the potential impact of the book value of the Company’s total shareholders’ equity exceeding the Company’s market capitalization at various points during the year for impairment indicators. The Company continues to believe that the share price is not an accurate reflection of its current value. The long-term outlook remains positive for agricultural commodities due to market volatility driven by scarcity of supply and strong demand. Management believes that the market’s impact on the Company’s equity value does not accurately reflect the impact of these external factors on the Company. As a result of prior period tests, reviews of current operating results and other relevant market factors, management ultimately concluded that, while the Company's shareholders equity exceeded the market capitalization for certain portions of the period, that no impairment trigger existed as of June 30, 2021. However, adverse market conditions or alternative management decisions on operations may result in future impairment considerations.
Trade
The Trade Group’s second quarter results improved substantially over the prior year as the Group saw the benefits of a demand-driven agriculture rally. Commodity price volatility and market dislocations created merchandising opportunities for the Group to be well positioned and execute on many commodities in both the domestic and export markets. This demand driven rally has created an inversion in the futures market for the majority of the agricultural commodities stored by the Group's asset business. However, traditional space income through the old crop carryout has been accelerated and exceeded by strong elevation margins and merchandising results. The Group’s propane business added significant volume both through a new terminal location and displacement opportunities. Finally, the business continued to benefit from prior year reorganization synergies and other cost-cutting efforts.
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Agricultural inventories on hand at June 30, 2021 were 85.8 million bushels, of which 1.2 million bushels were stored for others. These amounts compare to 74.4 million bushels on hand at June 30, 2020, of which 1.7 million bushels were stored for others. Total Trade storage space capacity, including temporary pile storage, was approximately 202 million bushels at June 30, 2021 compared to 201 million bushels at June 30, 2020.
We expect continued merchandising opportunities into harvest as scarcity of supply is impacting overall prices. Crop conditions in the majority of the Group's draw area are excellent and the business is preparing for a large harvest. As the volume of grain in store is expected to remain at levels below recent years for some time, high prices and strong elevation margins are expected to continue into 2022.
Ethanol
The Ethanol Group's second quarter results were profitable, and a substantial improvement compared to the prior year. The Group's prior year results were significantly impacted by COVID-19 as negative crush margins and weak demand plagued the ethanol industry. The 2021 results reflect a considerable improvement in crush margins, overall ethanol demand and higher ethanol trading results. The Group also benefited from increased co-product values, including high protein and traditional DDG products, as well as corn and other vegetable oils.
Spot ethanol crush margins have continued to improve from the prior year and higher corn and soybean meal prices continue to support feed product values. While there is a level of uncertainty that persists regarding a tighter corn balance sheet and how quickly the ethanol industry as a whole will recover from COVID-19, the group has observed rebounding driving demand, strong coproduct margins and continued trading opportunities.
Ethanol and related co-products volumes for the three and six months ended June 30, 2021 and 2020 were as follows:
| Three months ended June 30, | Six months ended June 30, | |||
|---|---|---|---|---|
| (in thousands) | 2021 | 2020 | 2021 | 2020 |
| Ethanol (gallons shipped) | 186,396 | 119,528 | 358,608 | 266,873 |
| E-85 (gallons shipped) | 11,914 | 4,396 | 19,805 | 13,489 |
| Corn oil (pounds shipped) | 56,760 | 20,968 | 104,708 | 50,262 |
| DDG (tons shipped)* | 454 | 334 | 931 | 964 |
* DDG tons shipped converts wet tons to a dry ton equivalent amount.
Plant Nutrient
The Plant Nutrient Group's second quarter results were considerably improved compared to the prior year period. The improvement was largely driven by improved margins in the Ag Supply Chain and Specialty Liquids product lines and reflect demand from favorable spring weather, strong grower income and well-positioned fertilizer inventory. Engineered Granules maintained strong demand but contended against rising input costs and a tight labor market. The group's outlook is positive, anticipating continued higher fertilizer prices and strong demand into the fall application season.
Storage capacity at our Ag Supply Chain and Specialty Liquids facilities, including leased storage, was approximately 463 thousand tons for dry nutrients and approximately 509 thousand tons for liquid nutrients at June 30, 2021, compared to approximately 481 thousand tons for dry nutrients and approximately 510 thousand tons for liquid nutrients at June 30, 2020.
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Tons of product sold for the three and six months ended June 30, 2021 and 2020 were as follows:
| Three months ended June 30, | Six months ended June 30, | |||
|---|---|---|---|---|
| (in thousands) | 2021 | 2020 | 2021 | 2020 |
| Ag Supply Chain | 661 | 690 | 1,008 | 904 |
| Specialty Liquids | 133 | 121 | 233 | 196 |
| Engineered Granules | 165 | 151 | 323 | 273 |
| Total tons | 959 | 962 | 1,564 | 1,373 |
In the table above, Ag Supply Chain represents facilities principally engaged in the wholesale distribution and retail sale and application of primary agricultural nutrients such as bulk nitrogen, phosphorus, and potassium. Specialty Liquid locations produce and sell a variety of low-salt liquid starter fertilizers, micronutrients for agricultural use, and specialty products for use in various industrial processes. Engineered Granules facilities primarily manufacture granulated dry products for use in specialty turf and agricultural applications and a variety of corncob-based products.
Rail
Rail results increased driven by the opportunistic sale of older railcars due to favorable scrap prices. The leasing business improved due to lower maintenance expenses and bad debt recoveries despite slightly decreased average lease rates. Average utilization rates increased from 88.3 percent in the second quarter of 2020 to 89.7 percent in the second quarter of 2021. Rail assets under management (owned, leased or managed for financial institutions in non-recourse arrangements) at June 30, 2021 were 21.8 thousand compared to 24.0 thousand at June 30, 2020.
While the North American railcar industry is showing signs of a slow recovery, lease rates are expected to stay relatively flat for much of the year.
Other
Our “Other” activities include corporate income and expense and cost for functions that provide support and services to the operating segments. The results include expenses and benefits not allocated to the operating segments and other elimination and consolidation adjustments.
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Operating Results
The following discussion focuses on the operating results as shown in the Condensed Consolidated Statements of Operations and includes a separate discussion by segment. Additional segment information is included herein in Note 12, Segment Information.
Comparison of the three months ended June 30, 2021 with the three months ended June 30, 2020 including a reconciliation of GAAP to non-GAAP measures:
| Three months ended June 30, 2021 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | Trade | Ethanol | Plant Nutrient | Rail | Other | Total | ||||||
| Sales and merchandising revenues | $ | 2,297,869 | $ | 616,527 | $ | 321,409 | $ | 37,921 | $ | — | $ | 3,273,726 |
| Cost of sales and merchandising revenues | 2,220,038 | 581,811 | 270,549 | 27,284 | — | 3,099,682 | ||||||
| Gross profit | 77,831 | 34,716 | 50,860 | 10,637 | — | 174,044 | ||||||
| Operating, administrative and general expenses | 61,514 | 6,577 | 26,568 | 4,416 | 10,901 | 109,976 | ||||||
| Interest expense (income), net | 7,452 | 2,021 | 1,146 | 3,394 | (559) | 13,454 | ||||||
| Equity in earnings of affiliates, net | 845 | — | — | — | — | 845 | ||||||
| Other income, net | 4,067 | 38 | 849 | 237 | 116 | 5,307 | ||||||
| Income (loss) before income taxes | $ | 13,777 | $ | 26,156 | $ | 23,995 | $ | 3,064 | $ | (10,226) | $ | 56,766 |
| Income (loss) before income taxes attributable to the noncontrolling interests | — | 2,625 | — | — | — | 2,625 | ||||||
| Non-GAAP Income (loss) before income taxes attributable to the Company | $ | 13,777 | $ | 23,531 | $ | 23,995 | $ | 3,064 | $ | (10,226) | $ | 54,141 |
| Three months ended June 30, 2020 | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (in thousands) | Trade | Ethanol | Plant Nutrient | Rail | Other | Total | ||||||
| Sales and merchandising revenues | $ | 1,351,168 | $ | 223,745 | $ | 279,825 | $ | 35,442 | $ | — | $ | 1,890,180 |
| Cost of sales and merchandising revenues | 1,291,786 | 226,344 | 241,060 | 24,724 | — | 1,783,914 | ||||||
| Gross profit | 59,382 | (2,599) | 38,765 | 10,718 | — | 106,266 | ||||||
| Operating, administrative and general expenses | 54,998 | 5,506 | 18,281 | 5,184 | 6,167 | 90,136 | ||||||
| Interest expense (income), net | 5,056 | 1,900 | 1,463 | 3,833 | (425) | 11,827 | ||||||
| Equity in earnings (losses) of affiliates, net | 79 | — | — | — | — | 79 | ||||||
| Other income (expense), net | 986 | 466 | 386 | 905 | 707 | 3,450 | ||||||
| Income (loss) before income taxes | $ | 393 | $ | (9,539) | $ | 19,407 | $ | 2,606 | $ | (5,035) | $ | 7,832 |
| Income (loss) before income taxes attributable to the noncontrolling interests | — | (10,407) | — | — | — | (10,407) | ||||||
| Non-GAAP Income (loss) before income taxes attributable to the Company | $ | 393 | $ | 868 | $ | 19,407 | $ | 2,606 | $ | (5,035) | $ | 18,239 |
The Company uses Income (loss) before income taxes attributable to the Company, a non-GAAP financial measure as defined by the Securities and Exchange Commission, to evaluate the Company’s financial performance. This performance measure is not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures. Management believes that Income (loss) before income taxes attributable to the Company is a useful measure of the Company’s performance because it provides investors additional information about the Company's operations allowing evaluation of underlying business performance and period-to-period comparability. This measure is not intended to replace or be alternatives to Income (loss) before income taxes, the most directly comparable amounts reported under GAAP.
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Trade
Operating results for the Trade Group increased by $13.4 million compared to the results of the same period last year. Sales and merchandising revenues increased by $946.7 million and cost of sales and merchandising revenues increased by $928.3 million for a favorable net gross profit impact of $18.4 million. Most of the increase to sales and cost of sales is the result of increased commodity prices. The net increase in gross profit was primarily driven by improved merchandising results as weather and export demand created volatility that allowed traders to identify arbitrage opportunities from geographical dislocations. This increase was partially offset by a decrease in the Group's traditional assets, however, as inverted futures markets in several commodities provided less space income, replacing and accelerating the income with merchandising opportunities noted above.
Operating, administrative and general expenses increased by $6.5 million. The increase from the prior year is primarily related to higher incentive compensation costs from improved operating results and other professional service fees.
Interest expense increased by $2.4 million due to higher group borrowings on the Company's short-term line of credit compared to the prior year.
Other income increased by $3.1 million from prior year largely driven by a gain on the sale of a grain location in the current year.
Ethanol
Operating results for the Ethanol Group increased by $22.7 million from the same period last year. Sales and merchandising revenues increased by $392.8 million and cost of sales and merchandising revenues increased by $355.5 million compared to prior year results. As a result gross profit increased by $37.3 million compared to 2020 results. Most of the increase to sales and cost of sales is the result of increased commodity prices. The net increase to gross profit in the current period results reflect improved ethanol margins, higher coproduct sales from DDGs and corn oil and strong merchandising revenues. The prior year results were significantly impacted by COVID-19.
Operating, administrative and general expenses increased by $1.1 million from the increase in labor and incentive compensation costs from increased production and improved operating results, respectively.
Plant Nutrient
Operating results for the Plant Nutrient Group increased by $4.6 million compared to the same period in the prior year. Sales and merchandising revenues increased by $41.6 million and cost of sales and merchandising revenues increased by $29.5 million resulting in a $12.1 million increase in gross profit. The increase in gross profit was driven by improved margins across the Ag Supply Chain and Specialty Liquids product lines and reflects higher spring demand, strong grower income and well positioned fertilizer inventory.
Operating, administrative and general expenses increased by $8.3 million due to higher incentive compensation costs from and improved operating results.
Interest expense decreased by $0.3 million due to lower interest rates.
Rail
Operating results increased by $0.5 million from the same period last year. Sales and merchandising revenues increased by $2.5 million from prior year. This was driven by a $4.9 million increase in car sale revenues and a $0.6 million increase in repair revenues that was partially offset by a $3.0 million decrease in leasing revenue. Cost of sales and merchandising revenues increased by $2.6 million compared to the prior year due to increased car sale revenues from the prior year. As a result, gross profit decreased by $0.1 million compared to the same period last year.
Operating, administrative and general expenses decreased by $0.8 million due to a decrease in bad debt expense as compared to the prior year. This was partially offset by higher incentive compensation from improved operating results.
Interest expense decreased by $0.4 million due to lower interest rates.
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Other
Operating results for the second quarter declined by $5.2 million compared to the same period in 2020. The increase in operating losses was primarily driven by higher operating, administrative and general expenses due to increased incentive-based compensation as a result of improved company-wide performance year over year and higher professional services expenses.
Income Taxes
For the three months ended June 30, 2021, the Company recorded an income tax expense of $10.6 million at an effective rate of 18.7%. For the three months ended June 30, 2020, the Company recorded an income tax benefit of $12.2 million at an effective tax rate of 155.8%. The change in effective tax rate for the three months ended June 30, 2021 as compared to the same period last year was primarily attributed to the treatment of mark-to-market activity on certain contracts in the Ethanol segment. The prior year also reflects the benefit of net operating loss carryback tax savings opportunities as provided by the CARES Act.
Comparison of the six months ended June 30, 2021 with the six months ended June 30, 2020 including a reconciliation of GAAP to non-GAAP measures:
| Six months ended June 30, 2021 | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | Trade | Ethanol | Plant Nutrient | Rail | Other | Total | ||||||||||||||||||||
| Sales and merchandising revenues | $ | 4,280,377 | $ | 1,059,486 | $ | 490,661 | $ | 78,931 | $ | — | $ | 5,909,455 | ||||||||||||||
| Cost of sales and merchandising revenues | 4,129,989 | 1,016,287 | 407,400 | 59,023 | — | 5,612,699 | ||||||||||||||||||||
| Gross profit | 150,388 | 43,199 | 83,261 | 19,908 | — | 296,756 | ||||||||||||||||||||
| Operating, administrative and general expenses | 118,445 | 13,233 | 49,967 | 7,290 | 20,913 | 209,848 | ||||||||||||||||||||
| Interest expense (income), net | 14,503 | 4,094 | 2,212 | 6,574 | (760) | 26,623 | ||||||||||||||||||||
| Equity in earnings (losses) of affiliates, net | 2,639 | — | — | — | — | 2,639 | ||||||||||||||||||||
| Other income (expense), net | 7,553 | 1,365 | 1,436 | 1,911 | 584 | 12,849 | ||||||||||||||||||||
| Income (loss) before income taxes | $ | 27,632 | $ | 27,237 | $ | 32,518 | $ | 7,955 | $ | (19,569) | $ | 75,773 | ||||||||||||||
| Income (loss) before income taxes attributable to the noncontrolling interests | — | 780 | — | — | — | 780 | ||||||||||||||||||||
| Non-GAAP Income (loss) before income taxes attributable to the Company | $ | 27,632 | $ | 26,457 | $ | 32,518 | $ | 7,955 | $ | (19,569) | $ | 74,993 | Six months ended June 30, 2020 | |||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||||||||||
| (in thousands) | Trade | Ethanol | Plant Nutrient | Rail | Other | Total | ||||||||||||||||||||
| Sales and merchandising revenues | $ | 2,729,209 | $ | 536,784 | $ | 404,738 | $ | 72,555 | $ | — | $ | 3,743,286 | ||||||||||||||
| Cost of sales and merchandising revenues | 2,607,361 | 568,782 | 345,609 | 52,138 | — | 3,573,890 | ||||||||||||||||||||
| Gross profit | 121,848 | (31,998) | 59,129 | 20,417 | — | 169,396 | ||||||||||||||||||||
| Operating, administrative and general expenses | 123,153 | 11,621 | 38,022 | 10,443 | 11,957 | 195,196 | ||||||||||||||||||||
| Interest expense (income), net | 12,245 | 4,257 | 3,248 | 8,316 | (652) | 27,414 | ||||||||||||||||||||
| Equity in earnings (losses) of affiliates, net | 209 | — | — | — | — | 209 | ||||||||||||||||||||
| Other income (expense), net | 3,750 | 912 | 356 | 1,955 | 1,290 | 8,263 | ||||||||||||||||||||
| Income (loss) before income taxes | $ | (9,591) | $ | (46,964) | $ | 18,215 | $ | 3,613 | $ | (10,015) | $ | (44,742) | ||||||||||||||
| Income (loss) before income taxes attributable to the noncontrolling interests | — | (23,856) | — | — | — | (23,856) | ||||||||||||||||||||
| Non-GAAP Income (loss) before income taxes attributable to the Company | $ | (9,591) | $ | (23,108) | $ | 18,215 | $ | 3,613 | $ | (10,015) | $ | (20,886) |
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Trade
Operating results for the Trade Group increased by $37.2 million compared to the results of the same period last year. Sales and merchandising revenues increased by $1,551.2 million and cost of sales and merchandising revenues increased by $1,522.6 million for an increased gross profit impact of $28.5 million. Most of the increase to sales and cost of sales is the result of increased commodity prices. The net increase in gross profit was primarily driven by improved merchandising results as weather and export demand created volatility that allowed traders to identify arbitrage opportunities from geographical dislocations. This increase was partially offset by a decrease in the Group's traditional assets, however, as inverted futures markets in several commodities provided less space income, replacing and accelerating the income with merchandising opportunities noted above.
Operating, administrative and general expenses decreased by $4.7 million. The decrease from the prior year is primarily related to the Company's cost saving initiatives, much of which is headcount reduction, both from acquisition integration and in response to the COVID-19 pandemic. The decrease was partially offset by higher incentive compensation costs from improved operating results.
Interest expense increased by $2.3 million due to higher group borrowings on the Company's short-term line of credit compared to the prior year.
Ethanol
Operating results for the Ethanol Group increased by $49.6 million from the same period last year. Sales and merchandising revenues increased by $522.7 million and cost of sales and merchandising revenues increased by $447.5 million compared to prior year. As a result, gross profit increased by $75.2 million compared to prior year. Most of the increase to sales and cost of sales is the result of increased commodity prices. The net increase to gross profit in the current period results reflect significantly improved crush margins, higher coproduct sales from DDGs and corn oil and strong merchandising revenues. The prior year results were significantly impacted by COVID-19 and the group recorded a $10.9 million inventory write down and a $9.6 million mark to market loss.
Operating, administrative and general expenses increased by $1.6 million primarily due to higher labor and incentive compensation costs from increased production and improved operating results, respectively.
Plant Nutrient
Operating results for the Plant Nutrient Group increased by $14.3 million compared to the same period in the prior year. Sales and merchandising revenues increased $85.9 million and cost of sales and merchandising revenues increased by $61.8 million resulting in increased gross profit of $24.1 million. Gross profit improved year over year due to increases in volumes and margins across the breadth of product lines and reflects higher demand, strong grower income and well positioned fertilizer inventory.
Operating, administrative and general expenses increased by $11.9 million due to increased incentive compensation from improved operating results, and other variable expenses supporting additional volume in the current year.
Interest expense decreased by $1.0 million from lower interest rates compared to the prior year.
Rail
Operating results increased by $4.3 million from the same period last year. Sales and merchandising revenues increased by $6.4 million. This was driven by a $11.5 million increase in car sale revenues and a $1.8 million increase in repair revenues that was partially offset by a $6.9 million decrease in leasing revenue. Cost of sales and merchandising increased by $6.9 million compared to the prior year driven by the book value of cars that were sold in the quarter. As a result, gross profit decreased by $0.5 million compared to the same period last year.
Operating, administrative and general expenses decreased by $3.2 million driven by a $1.6 million recovery of previously written off bad debt and overall lower expenses in the period.
Interest expense decreased by $1.7 million from lower borrowings and interest rates compared to the prior year.
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Other
Operating results declined by $9.6 million from the same period last year. The increase in operating losses was primarily driven by increased incentive-based compensation in operating, administrative and general expenses due to improved company-wide performance year over year and higher professional services expenses.
Income Taxes
For the six months ended June 30, 2021, the Company recorded an income tax expense of $16.4 million at an effective rate of 21.6%. For the six months ended June 30, 2020, the Company recorded an income tax benefit of $13.7 million at an effective tax rate of 30.5%. The change in effective tax rate for the six months ended June 30, 2021 as compared to the same period last year primarily attributed improved operating results in the current year, including additional nondeductible compensation and increased foreign tax expense, as well as the treatment of mark-to-market activity on certain contracts in the Ethanol segment.
Liquidity and Capital Resources
Working Capital
At June 30, 2021, the Company had working capital of $543.7 million. The following table presents changes in the components of current assets and current liabilities:
| (in thousands) | June 30, 2021 | June 30, 2020 | Variance | |||
|---|---|---|---|---|---|---|
| Current Assets: | ||||||
| Cash and cash equivalents | $ | 27,538 | $ | 30,011 | $ | (2,473) |
| Accounts receivable, net | 721,575 | 537,011 | 184,564 | |||
| Inventories | 912,299 | 616,323 | 295,976 | |||
| Commodity derivative assets – current | 507,148 | 112,089 | 395,059 | |||
| Other current assets | 65,740 | 102,755 | (37,015) | |||
| Total current assets | $ | 2,234,300 | $ | 1,398,189 | $ | 836,111 |
| Current Liabilities: | ||||||
| Short-term debt | 757,271 | 96,071 | 661,200 | |||
| Trade and other payables | 547,169 | 503,892 | 43,277 | |||
| Customer prepayments and deferred revenue | 58,155 | 45,734 | 12,421 | |||
| Commodity derivative liabilities – current | 90,366 | 65,186 | 25,180 | |||
| Current maturities of long-term debt | 56,582 | 68,477 | (11,895) | |||
| Accrued expenses and other current liabilities | 181,015 | 147,422 | 33,593 | |||
| Total current liabilities | $ | 1,690,558 | $ | 926,782 | $ | 763,776 |
| Working Capital | $ | 543,742 | $ | 471,407 | $ | 72,335 |
Current assets as of June 30, 2021 increased $836.1 million in comparison to those as of June 30, 2020. This increase was noted in all areas except for cash and cash equivalents and other current assets. The increases in accounts receivable, current commodity derivative assets and inventory balances can largely be attributable to the significant increases in the prices of agricultural commodities that the Company transacts in the ordinary course of business. The decrease in other current assets is attributable to the receipt of federal income tax refunds as a result of the CARES Act in 2020. See also the discussion below on additional sources and uses of cash for an understanding of the increase in cash from prior year.
Current liabilities increased $763.8 million compared to the prior year primarily due to increases in short-term debt and trade and other payables. The increase in short-term debt is the result of higher working capital needs and driven by significant increases in the prices of agricultural commodities. The increase in trade and other payables is also the result of increasing agricultural commodity prices. Short-term borrowings, while typically at a seasonal high in the spring, are further supporting an unusual price run-up in our core commodities. As we liquidate these commodities in advance of harvest, we expect a reduction to the level of short-term borrowing. The increase in current liabilities was slightly offset by reductions in current maturities of long-term debt.
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Sources and Uses of Cash
| Six Months Ended | ||||
|---|---|---|---|---|
| (in thousands) | June 30, 2021 | June 30, 2020 | ||
| Net cash (used in) provided by operating activities | $ | (245,494) | $ | 145,511 |
| Net cash used in investing activities | (23,474) | (66,002) | ||
| Net cash provided by (used in) financing activities | 267,550 | (105,068) |
Operating Activities
Our operating activities used cash of $245.5 million and provided cash of $145.5 million in the first six months of 2021 and 2020, respectively. The increase in cash used was primarily due to a result in the change of working capital, as discussed above, driven by significant increases in agricultural commodity prices. However, when you remove the impact from changes in working capital, cash provided by operating activities was much stronger than the prior period due to favorable operating results.
Investing Activities
Investing activities used cash of $23.5 million through the first six months of 2021 compared to cash used of $66.0 million in the prior year. The decrease from the prior year was a result of higher proceeds from sales of assets and railcars, fewer purchased railcars and the continued strategic use of capital spending to enhance overall liquidity and cash management.
We expect to invest approximately $100 million in property, plant and equipment in 2021; approximately 60% of which will be to maintain facilities.
Financing Activities
Financing activities provided cash of $267.6 million and $105.1 million for the six months ended June 30, 2021 and 2020, respectively. This change from the prior year was largely due to a significant increase in short term borrowings to cover working capital needs as the prices of agricultural commodities continue to rise.
The Company is party to borrowing arrangements with a syndicate of banks that provide a total of $1,404.6 million in borrowings. Of the total capacity, $404.6 million is non-recourse to the Company. As of June 30, 2021, the Company had $1,173.5 million available for borrowing with $237.2 million of that total being non-recourse to the Company.
The Company paid $11.7 million in dividends in the first six months of 2021 compared to $11.5 million in the prior year. The Company paid $0.175 per common share for the dividends paid in January and April of 2021 and 2020. On June 25, 2021, the Company declared a cash dividend of $0.175 per common share payable on July 22, 2021 to shareholders of record on July 6, 2021.
Certain of our long-term borrowings include covenants that, among other things, impose minimum levels of equity and limitations on additional debt. The Company is in compliance with all such covenants as of June 30, 2021. In addition, certain of our long-term borrowings are collateralized by first mortgages on various facilities or are collateralized by railcar assets. Our non-recourse long-term debt is collateralized by ethanol plant assets and railcar assets.
Because the Company is a significant borrower of short-term debt in peak seasons and the majority of this is variable rate debt, increases in interest rates could have a significant impact on our profitability. In addition, periods of high grain prices and/or unfavorable market conditions could require us to make additional margin deposits on our exchange traded futures contracts. Conversely, in periods of declining prices, the Company could receive a return of cash.
Management believes our sources of liquidity will be adequate to fund our operations, capital expenditures and service our indebtedness.
At June 30, 2021, the Company had standby letters of credit outstanding of $25.5 million.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
For further information, refer to our Annual Report on Form 10-K for the year ended December 31, 2020. There were no material changes in market risk, specifically commodity and interest rate risk during the six months ended June 30, 2021.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of June 30, 2021 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the second quarter of 2021, identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The Andersons, Inc. | Q2 2021 Form 10-Q | 32
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Part II. Other Information
Item 1. Legal Proceedings
The Company is subject to legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. Except as described in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 13, “Commitments and Contingencies,” in the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss greater than a recorded accrual, concerning loss contingencies for asserted legal and other claims.
The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts above management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected.
Item 1A. Risk Factors
The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A of the 2020 Form 10-K under the heading “Risk Factors,” any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price. There have been no material changes to the Company’s risk factors since the 2020 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
| Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |
|---|---|---|---|---|---|
| April 2021 | 12,760 | $ | 27.38 | — | — |
| May 2021 | — | — | — | — | |
| June 2021 | 177 | 30.86 | — | — | |
| Total | 12,937 | $ | 27.43 | — | — |
(1) During the three months ended June 30, 2021, the Company acquired shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.
(2) No shares were purchased as part of publicly announced plans or programs.
Item 4. Mine Safety Disclosure
The Company is committed to protecting the occupational health and well-being of each of our employees. Safety is one of our core values and as an organization strive to ensure that safety is the first priority for all employees. Our internal objective is to achieve zero injuries and incidents across the Company by focusing on proactively identifying needed prevention activities, establishing standards and evaluating performance to mitigate any potential loss to people, equipment, production and the environment. The Company has implemented employee training that is geared toward maintaining a high level of awareness and knowledge of safety and health issues in the work environment. Management believes that through these policies the Company has developed an effective safety management system.
Under the Dodd-Frank Act, each operator of a coal or other mine is required to include certain mine safety results within its periodic reports filed with the SEC. As required by the reporting requirements included in §1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K, the required mine safety results regarding certain mining safety and health matters for each of our mine locations that are covered under the scope of the Dodd-Frank Act are included in Exhibit 95.1 of Item 6. Exhibits of this Quarterly Report on Form 10-Q.
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Item 6. Exhibits
| Exhibit Number | Description |
|---|---|
| 10.1 | Third Amendment to Credit Agreement |
| 31.1* | Certification of the Chief Executive Officer under Rule 13(a)-14(a)/15d-14(a) |
| 31.2* | Certification of the Chief Financial Officer under Rule 13(a)-14(a)/15d-14(a) |
| 32.1** | Certifications Pursuant to 18 U.S.C. Section 1350 |
| 95.1* | Mine Safety Disclosure |
| 101** | Inline XBRL Document Set for the Condensed Consolidated Financial Statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q. |
| 104** | Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set. |
| * Filed herewith | |
| ** Furnished herewith |
Items 3 and 5 are not applicable and have been omitted
The Andersons, Inc. | Q2 2021 Form 10-Q | 34
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| THE ANDERSONS, INC. | |
|---|---|
| Date: August 4, 2021 | /s/ Patrick E. Bowe |
| Patrick E. Bowe | |
| Chief Executive Officer | |
| Date: August 4, 2021 | /s/ Brian A. Valentine |
| Brian A. Valentine | |
| Executive Vice President and Chief Financial Officer |
The Andersons, Inc. | Q2 2021 Form 10-Q | 35
Document
Exhibit 10.1
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is entered into as of May 20, 2021 by and among The Andersons Marathon Holdings LLC, a Delaware limited liability company (the “Borrower”), the Lenders signatory hereto, and CoBank, ACB, a federally chartered instrumentality of the United States, in its capacity as administrative agent for the Lenders (in such capacity, the “Administrative Agent”).
The Borrower, the Guarantors from time to time party thereto, the Lenders from time to time party thereto and the Administrative Agent are parties to that certain Credit Agreement dated as of October 1, 2019, as amended by that certain First Amendment to Credit Agreement dated December 13, 2019 and that certain Second Amendment to Credit Agreement dated July 17, 2020 (as so amended and as the same may be further amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”). As used in these recitals, capitalized terms defined in the Credit Agreement and used but not defined herein shall have the meanings given them in the Credit Agreement.
The Borrower has requested that the Administrative Agent and the Lenders agree to amend certain terms and provisions of the Credit Agreement, and the Administrative Agent and the Lenders are willing to grant such request on the terms and subject to the conditions set forth herein.
ACCORDINGLY, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Definitions. As used herein, capitalized terms defined in the Credit Agreement and not otherwise defined herein shall have the meanings given them in the Credit Agreement.
Section 2. Amendments to the Credit Agreement. Effective as of December 31, 2020, The following definition in Section 1.1 of the Credit Agreement is hereby amended and restated as follows:
“Pricing Grid” means the table and text set forth below:
| Level | Consolidated EBITDA | Unused Commitment Fee Rate | Letter of Credit Fee Rate | Applicable Margin for Floating Rate Loans and LIBOR Rate Loans | Applicable Margin for ABR Loans |
|---|---|---|---|---|---|
| I | ≥ $100,000,000 | 0.50% | 2.50% | 2.50% | 1.50% |
| II | ≥ $50,000,000 and < $100,000,000 | 0.50% | 2.75% | 2.75% | 1.75% |
| III | < $50,000,000 | 0.50% | 3.00% | 3.00% | 2.00% |
For purposes of determining the Applicable Margin, the Unused Commitment Fee Rate and the Letter of Credit Fee Rate:
(a) Until receipt of the Compliance Certificate accompanying the Borrower’s audited financial statements for the measurement period ending December 31, 2021, the Applicable
Margin, the Unused Commitment Fee Rate and the Letter of Credit Fee Rate shall be set at Level II.
(b) The Applicable Margin, the Unused Commitment Fee Rate and the Letter of Credit Fee Rate shall be recomputed as of December 31, 2021 and the end of each fiscal year of the Borrower thereafter based on Consolidated EBITDA as of such fiscal year end as reported in the Borrower’s audited financial statements delivered pursuant to Section 6.1(b). Any increase or decrease in the Applicable Margin, the Unused Commitment Fee Rate or the Letter of Credit Fee Rate computed as of a fiscal year end shall be effective no later than 5 Business Days following the date on which the Compliance Certificate evidencing such computation is due to be delivered under Section 6.1(c). If a Compliance Certificate is not delivered when due in accordance with such Section 6.1(c), then the rates in Level III shall apply as of the first Business Day after the date on which such Compliance Certificate was required to have been delivered and shall remain in effect until the date on which such Compliance Certificate is delivered.
(c) If, as a result of any restatement of or other adjustment to the financial statements of the Borrower or for any other reason, the Borrower or the Lenders determine that (i) Consolidated EBITDA as calculated by the Borrower as of any applicable date was inaccurate and (ii) a proper calculation of Consolidated EBITDA would have resulted in higher pricing for such period, the Borrower shall immediately and retroactively be obligated to pay to the Administrative Agent for the account of the applicable Lenders, promptly on demand by the Administrative Agent (or, after the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under any Debtor Relief Law, automatically and without further action by the Administrative Agent, any Lender or the Issuing Lender), an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period. Neither this clause (c) nor the foregoing clause (b) shall limit the rights of the Administrative Agent, any Lender or the Issuing Lender, as the case may be, under Section 2.8, Section 3.5, Section VIII, or any other provision of any Loan Document, other agreement or applicable Law.
(d) Upon the occurrence of any Event of Default, the rates in Level III shall apply and shall remain in effect until the date on which such Event of Default is cured or waived.
Section 3. Further Amendments to the Credit Agreement. Effective as of the date hereof, the Credit Agreement is hereby amended as follows:
(a) Amendments to Section 1.1 of the Credit Agreement (Certain Definitions). The following definitions in Section 1.1 of the Credit Agreement are hereby added or amended and restated, as the case may be:
“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark, as applicable, any tenor for such Benchmark or payment period for interest calculated with reference to such Benchmark, as applicable, that is or may be used for determining the length of an Interest Period pursuant to this Agreement as of such date and not including, for the avoidance of doubt, any tenor for such Benchmark that is then-removed from the definition of “Interest Period” pursuant to Section 3.8(d).
“Benchmark” means, initially, the LIBOR Rate; provided that if a Benchmark Transition Event, an Early Opt-in Election or a Term SOFR Transition Event, as
applicable, and its related Benchmark Replacement Date have occurred, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to Section 3.8(a).
“Benchmark Replacement” means,
(a) with respect to any Benchmark Transition Event, for any Available Tenor, the first alternative set forth in the order below that can be determined by the Administrative Agent for the applicable Benchmark Replacement Date:
(i) the sum of: (A) Term SOFR and (B) the related Benchmark Replacement Adjustment;
(ii) the sum of: (A) Daily Simple SOFR and (B) the related Benchmark Replacement Adjustment;
(iii) the sum of: (A) the alternate benchmark rate that has been selected by the Administrative Agent (so long as the Administrative Agent has not received by 3:00 p.m. (Denver, Colorado time) on the fifth (5th) Business Day after the date notice of such selection is provided to the Borrower written notice of objection from the Borrower (which written notice will specify the reasons for the objection)) or by the Administrative Agent and the Borrower as the replacement for the then-current Benchmark for the applicable Corresponding Tenor giving due consideration to (I) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (II) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement for the then-current Benchmark for U.S. dollar-denominated syndicated credit facilities at such time and (B) the related Benchmark Replacement Adjustment;
provided that, in the case of clause (a)(i), such Unadjusted Benchmark Replacement is displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion. If the Benchmark Replacement as determined pursuant to clause (a)(i), (a)(ii) or (a)(iii) above would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents; or
(b) with respect to any Term SOFR Transition Event, upon delivery of a Term SOFR Notice and the occurrence of the applicable Benchmark Replacement Date, the sum of (i) Term SOFR and (ii) the related Benchmark Replacement Adjustment as set forth in clause (a)(i) of this definition. If the Benchmark Replacement as determined pursuant to this clause (b) would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.
“Benchmark Replacement Adjustment” means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement for any applicable Interest Period and Available Tenor for any setting of such Unadjusted Benchmark Replacement:
(a) for purposes of clauses (a)(i) and (a)(ii) of the definition of “Benchmark Replacement,” the first alternative set forth in the order below that can be determined by the Administrative Agent:
(i) the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) as of the Reference Time such Benchmark Replacement is first set for such Interest Period that has been selected or recommended by the Relevant Governmental Body for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for the applicable Corresponding Tenor;
(ii) the spread adjustment (which may be a positive or negative value or zero) as of the Reference Time such Benchmark Replacement is first set for such Interest Period that would apply to the fallback rate for a derivative transaction referencing the ISDA Definitions to be effective upon an index cessation event with respect to such Benchmark for the applicable Corresponding Tenor; and
(b) for purposes of clause (a)(iii) of the definition of “Benchmark Replacement,” the spread adjustment, or method for calculating or determining such spread adjustment, that has been selected by the Administrative Agent (so long as the Administrative Agent has not received by 3:00 p.m. (Denver, Colorado time) on the fifth (5th) Business Day after the date notice of such selection is provided to the Borrower written notice of objection from the Borrower (which written notice will specify the reasons for the objection)) or by the Administrative Agent and the Borrower for the applicable Corresponding Tenor giving due consideration to (i) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body on the applicable Benchmark Replacement Date or (ii) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for U.S. dollar- denominated syndicated credit facilities;
provided that, in the case of clause (a) above, such adjustment is displayed on a screen or other information service that publishes such Benchmark Replacement Adjustment from time to time as selected by the Administrative Agent in its reasonable discretion.
“Benchmark Replacement Conforming Changes” means, with respect to any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “Alternate Base Rate,” the definition of “Business Day,” the
definition of “Interest Period,” timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, length of lookback periods, the applicability of breakage provisions, and other technical, administrative or operational matters) to reflect the adoption and implementation of such Benchmark Replacement and to permit the administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice for the administration of such Benchmark Replacement exists, in such other manner of administration as the Administrative Agent decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).
“Benchmark Replacement Date” means the earliest to occur of the following events with respect to the then-current Benchmark:
(a) in the case of clause (a) or (b) of the definition of “Benchmark Transition Event,” the later of (i) the date of the public statement or publication of information referenced therein and (ii) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof);
(b) in the case of clause (c) of the definition of “Benchmark Transition Event,” the date of the public statement or publication of information referenced therein;
(c) in the case of an Early Opt-in Election, the sixth (6th) Business Day after the date notice of such Early Opt-in Election is provided to the Lenders, so long as the Administrative Agent has not received, by 3:00 p.m. (Denver, Colorado time) on the fifth (5th) Business Day after the date notice of such Early Opt-in Election is provided to the Lenders, written notice of objection to such Early Opt-in Election from Lenders comprising the Required Lenders of each Class (which written notice will specify the provisions of such notice of Early Opt-In Election to which such Lender objects); or
(d) in the case of a Term SOFR Transition Event, the date that is 30 days (or such later date as the Administrative Agent may specify in the Term SOFR Notice) after the date the Term SOFR Notice is provided by the Administrative Agent to the Lenders and the Borrower pursuant to Section 3.8(a)(ii).
For the avoidance of doubt, (x) if the event giving rise to the Benchmark Replacement Date occurs on the same day as, but earlier than, the Reference Time in respect of any determination, the Benchmark Replacement Date will be deemed to have occurred prior to the Reference Time for such determination and (y) the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (a) or (b) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with
respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Transition Event” means the occurrence of one or more of the following events with respect to the then-current Benchmark:
(a) a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof);
(b) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Board, the Federal Reserve Bank of New York, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); or
(c) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that all Available Tenors of such Benchmark (or such component thereof) are no longer representative.
For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Unavailability Period” means the period (if any) (a) beginning at the time that a Benchmark Replacement Date pursuant to clauses (a) or (b) of the definition of “Benchmark Replacement Date” has occurred if, at such time, no Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 3.8, and (b) ending at the time that a Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 3.8.
“Corresponding Tenor” with respect to any Available Tenor means, as applicable, either a tenor (including overnight) or an interest payment period having
approximately the same length (disregarding business day adjustment) as such Available Tenor.
“Daily Simple SOFR” means, for any day, SOFR, with the conventions for this rate (which will include a lookback) being established by the Administrative Agent in accordance with the conventions for this rate selected or recommended by the Relevant Governmental Body for determining “Daily Simple SOFR” for syndicated business loans; provided, that if the Administrative Agent decides that any such convention is not administratively feasible for the Administrative Agent, then the Administrative Agent may establish another convention in its reasonable discretion.
“Early Opt-in Election” means, if the then-current Benchmark is the LIBOR Rate, the occurrence of the election by the Administrative Agent (in accordance with any evolving or then-prevailing market conventions) to trigger a fallback from the LIBOR Rate and the provision by the Administrative Agent of written notice of such election to the Lenders.
“Floor” means the benchmark rate floor, if any, provided in this Agreement immediately prior to the Benchmark Replacement Date with respect to the then-current Benchmark; provided that, if no such benchmark rate floor is provided in this Agreement, the “Floor” shall be zero.
“Interest Period” means the period of time selected by the Borrower in connection with (and to apply to) any election permitted hereunder by the Borrower to have Revolving Term Advances or Term Advances bear interest under the LIBOR Rate Option. Subject to the last sentence of this definition, such period shall be one, three, six or, to the extent made available by all Lenders, twelve months. Such Interest Period shall commence on the effective date of such LIBOR Rate Loan, which shall be (i) the Borrowing Date if the Borrower is requesting new Loans, or (ii) the date of renewal of or conversion to a LIBOR Rate Loan if the Borrower is renewing or converting an existing Loan. Notwithstanding the second sentence hereof: (a) any Interest Period that would otherwise end on a date that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (b) the Borrower shall not select, convert to or renew an Interest Period for any portion of the Loans that would end after the Maturity Date and (c) if any Interest Period begins on the last Business Day of a month or on a day of a month for which there is no numerically corresponding day in the month in which such Interest Period is to end, such Interest Period shall be deemed to end on the last Business Day of the final month of such Interest Period.
“ISDA Definitions” means the 2006 ISDA Definitions published by the International Swaps and Derivatives Association, Inc. or any successor thereto, as amended or supplemented from time to time, or any successor definitional booklet for interest rate derivatives published from time to time by the International Swaps and Derivatives Association, Inc. or such successor thereto.
“LIBOR Rate” means, with respect to any Interest Period, a rate of interest (rounded upward to the next whole multiple of 1/100th of one percent) reported by
Bloomberg Information Services (or on any successor or substitute service providing rate quotations comparable to those currently provided by such service, as determined by the Administrative Agent from time to time, for the purpose of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for Dollar deposits with a maturity comparable to such Interest Period; provided that (a) if such rate (as determined without giving effect to this sentence) shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement, and (b) in the event the Administrative Agent is not able to determine the LIBOR Rate using such methodology for any reason other than a Benchmark Transition Event, then “LIBOR Rate” shall mean the rate determined in accordance with Section 3.4 of this Agreement.
“Reference Time” with respect to any setting of the then-current Benchmark means (a) if such Benchmark is the LIBOR Rate, 11:00 a.m. (London time) on the day that is two London banking days preceding the date of such setting, and (b) if such Benchmark is not the LIBOR Rate, the time determined by the Administrative Agent in its reasonable discretion.
“Relevant Governmental Body” means the Board or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Board or the Federal Reserve Bank of New York, or any successor thereto.
“SOFR” means, with respect to any Business Day, a rate per annum equal to the secured overnight financing rate for such Business Day published by the SOFR Administrator on the SOFR Administrator’s Website on the immediately succeeding Business Day.
“SOFR Administrator” means the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).
“SOFR Administrator’s Website” means the website of the Federal Reserve Bank of New York, currently at http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified as such by the SOFR Administrator from time to time.
“Term SOFR” means, for the applicable Corresponding Tenor as of the applicable Reference Time, the forward-looking term rate based on SOFR that has been selected or recommended by the Relevant Governmental Body.
“Term SOFR Notice” means a notification by the Administrative Agent to the Lenders and the Borrower of the occurrence of a Term SOFR Transition Event.
“Term SOFR Transition Event” means the determination by the Administrative Agent that (a) Term SOFR has been recommended for use by the Relevant Governmental Body, (b) the administration of Term SOFR is administratively feasible for the Administrative Agent, and (c) a Benchmark Transition Event has previously occurred resulting in a Benchmark Replacement in accordance with Section 3.8 that is not Term SOFR.
“Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment.
“Weekly Reset LIBO Rate” means the Adjusted LIBOR Rate for an Interest Period of one month, determined by the Administrative Agent as of approximately 11:00 a.m. (London, England time) on the first Business Day of each calendar week, rather than in accordance with the timing set forth in the definition of LIBOR Rate. The rate shall be reset automatically, without the necessity of notice being provided to the Borrower or any other party, on the first Business Day of each succeeding calendar week, and each change in the rate shall be applicable to all balances subject to this option. Notwithstanding the foregoing, (a) if such rate (as determined without giving effect to this sentence) shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement and (b) in the event the Administrative Agent is not able to determine the Weekly Reset LIBO Rate (or any component thereof) using such methodology for any reason other than a Benchmark Transition Event, then “Weekly Reset LIBO Rate” shall mean the rate determined in accordance with Section 3.4 of this Agreement.
(b) Amendment to Section 1.8 of the Credit Agreement (Administration of Rates). Section 1.8 of the Credit Agreement is amended and restated in its entirety to read as follows:
“1.8 [Reserved].”
(c) Amendment to Section 3.4 of the Credit Agreement (LIBOR Rate Option Unavailable). Section 3.4 of the Credit Agreement is amended and restated in its entirety to read as follows:
“3.4 LIBOR Rate Option Unavailable. Provided that no Benchmark Transition Event shall have occurred at such time, if at any time the Administrative Agent shall have determined or been instructed by the Required Lenders that (a) adequate means do not exist for adequately and fairly determining the cost to the Lenders of making or maintaining LIBOR Rate Loans or Floating Rate Loans or calculating the same, or (b) the LIBOR Rate or the Adjusted LIBOR Rate will not adequately and fairly reflect the cost to the Lenders of making or maintaining LIBOR Rate Loans or Floating Rate Loans, then, upon notice from the Administrative Agent to the Borrower and the Lenders, the obligations of all Lenders under Sections 2.4 and 2.5 to make or continue any Loans as, or to convert any Loans into, LIBOR Rate Loans or Floating Rate Loans shall forthwith be suspended and, upon the expiration of the applicable Interest Period (or immediately, if the foregoing is in contravention of applicable Law), the affected Loans shall automatically begin bearing interest at the ABR Rate Option until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist.”
(d) Amendment to Article III of the Credit Agreement (Benchmark Replacement Setting). Article III of the Credit Agreement is amended by inserting the following new Section 3.8 to the end thereof to read as follows:
“3.8 Benchmark Replacement Setting.
(a) Benchmark Replacement.
(i) Notwithstanding anything to the contrary herein or in any other Loan Document (and, for the avoidance of doubt, any Secured Bank Product or Hedge Agreement shall be deemed not to be a “Loan Document” for purposes of this Section 3.8), if a Benchmark Transition Event or an Early Opt-in Election, as applicable, and its related Benchmark Replacement Date have occurred prior to the Reference Time in respect of any setting of the then-current Benchmark, then (x) if a Benchmark Replacement is determined in accordance with clause (a)(i) or (a)(ii) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of such Benchmark setting and subsequent Benchmark settings without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document and (y) if a Benchmark Replacement is determined in accordance with clause (a)(iii) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of any Benchmark setting at or after 3:00 p.m. (Denver, Colorado time) on the fifth (5th) Business Day after the date notice of such Benchmark Replacement is provided to the Lenders without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document so long as the Administrative Agent has not received, by such time, written notice of objection to such Benchmark Replacement from the Required Lenders of each Class (which written notice will specify the provisions of such amendment to which such the Required Lenders object); provided, that, with respect to any proposed amendment containing any SOFR-based Benchmark Replacement, the Required Lenders shall be entitled to object only to the Benchmark Replacement Adjustment contained therein.
(ii) Notwithstanding anything to the contrary herein or in any other Loan Document and subject to the proviso below in this Section 3.8(a)(ii), if a Term SOFR Transition Event and its related Benchmark Replacement Date have occurred prior to the Reference Time in respect of any setting of the then-current Benchmark, then the applicable Benchmark Replacement will replace the then-current Benchmark for all purposes hereunder or under any Loan Document in respect of such Benchmark setting and subsequent Benchmark settings, without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document; provided that, this Section 3.8(a)(ii) shall not be effective unless the Administrative Agent has delivered to the Lenders and the Borrower a Term SOFR Notice.
(b) Benchmark Replacement Conforming Changes. In connection with the implementation of a Benchmark Replacement, the Administrative Agent will have the right to make Benchmark Replacement Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other
Loan Document, any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document.
(c) Notices; Standards for Decisions and Determinations. The Administrative Agent will promptly notify the Borrower and the Lenders of (i) any occurrence of a Benchmark Transition Event, an Early Opt-in Election, or a Term SOFR Transition Event, as applicable, and its related Benchmark Replacement Date, (ii) the implementation of any Benchmark Replacement, (iii) the effectiveness of any Benchmark Replacement Conforming Changes, (iv) the removal or reinstatement of any tenor of a Benchmark pursuant to Section 3.8(d) below and (v) the commencement or conclusion of any Benchmark Unavailability Period. Any determination, decision or election that may be made by the Administrative Agent or, if applicable, any Lender (or group of Lenders) pursuant to this Section 3.8, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without consent from any other party to this Agreement or any other Loan Document, except, in each case, as expressly required pursuant to this Section 3.8.
(d) Unavailability of Tenor of Benchmark. Notwithstanding anything to the contrary herein or in any other Loan Document, at any time (including in connection with the implementation of a Benchmark Replacement), (i) if the then-current Benchmark is a term rate and either (A) any tenor for such Benchmark is not displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion or (B) the regulatory supervisor for the administrator of such Benchmark has provided a public statement or publication of information announcing that any tenor for such Benchmark is or will be no longer representative, then the Administrative Agent may modify the definition of “Interest Period” for any Benchmark settings at or after such time to remove such unavailable or non-representative tenor and (ii) if a tenor that was removed pursuant to clause (i) above either (A) is subsequently displayed on a screen or information service for a Benchmark (including a Benchmark Replacement) or (B) is not, or is no longer, subject to an announcement that it is or will no longer be representative for a Benchmark (including a Benchmark Replacement), then the Administrative Agent may modify the definition of “Interest Period” for all Benchmark settings at or after such time to reinstate such previously removed tenor.
(e) Benchmark Unavailability Period. Upon the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period, (i) any conversion or continuation notice requesting the conversion or continuation of any Borrowing at the then-current Benchmark shall be ineffective and on the proposed date of such conversation or continuation the applicable Borrowing shall be converted or continued, as applicable, as a Borrowing at the ABR Rate Option and (ii) if any Loan Request requests a Borrowing at the LIBOR Rate
Option (or the then-current Benchmark), such Borrowing shall be made as a Borrowing at the ABR Rate Option. During any Benchmark Unavailability Period or at any time that a tenor for the then-current Benchmark is not an Available Tenor, the component of the Alternate Base Rate based upon the then-current Benchmark or such tenor for such Benchmark, as applicable, will not be used in any determination of Alternate Base Rate.”
(e) Amendment to Article X of the Credit Agreement (Rates Disclaimer). Article X of the Credit Agreement is amended by inserting the following new Section 10.16 to the end thereof to read as follows:
“10.16 Rates Disclaimer. The Administrative Agent does not warrant or accept responsibility for, and each of the parties to this Agreement hereby acknowledges and agrees (for the benefit of the Administrative Agent) that the Administrative Agent shall not have any liability with respect to, (a) the administration of, submission of, calculation of or any other matter related to rates in the definition of “LIBOR Rate”, “Weekly Reset LIBO Rate” or “Adjusted LIBOR Rate”, “Term SOFR”, “Daily Simple SOFR”, or any other SOFR-based Replacement Rate, any component definition thereof or rates referenced in the definition thereof or any alternative, comparable or successor rate thereto (including any then-current Benchmark or any Benchmark Replacement), including whether the composition or characteristics of any such alternative, comparable or successor rate (including any Benchmark Replacement) will be similar to, or produce the same value or economic equivalence of, or have the same volume or liquidity as, any other Benchmark, (b) the effect, implementation or composition of any Benchmark Replacement Conforming Changes, or (c) any potential non-compliance with applicable Laws (including, without limitation, to the extent applicable, the Regulation (EU) 2016/1011 of the European Parliament and of the Council, as amended) in the methodology for calculating the LIBOR Rate or the Weekly Reset LIBO Rate, each as set forth in the definition thereof.”
Section 4. No Waiver; No Other Changes. The execution of this Amendment or any documents, agreements and certificates contemplated hereunder shall not be deemed to be a waiver of any Default or Event of Default or any other breach, default or event of default under any Loan Document or other document held by the Administrative Agent or any Lender, whether or not known to the Administrative Agent or any Lender and whether or not existing on the date of this Amendment. Except as expressly set forth herein, all terms of the Credit Agreement and each of the other Loan Documents remain in full force and effect.
Section 5. References. All references in the Credit Agreement to “this Agreement” shall be deemed to refer to the Credit Agreement as amended hereby, and any and all references in any other Loan Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby.
Section 6. Representations and Warranties. The Borrower hereby represents and warrants to the Administrative Agent and the Secured Parties as follows:
(a) The Borrower has the full power to enter into, execute, deliver and carry out this Amendment and the other documents delivered hereunder to which it is a party (the “Amendment Documents”) and to perform its obligations under the Amendment Documents to which it is a party and the Credit Agreement as amended hereby, and all such actions have been duly authorized by all necessary proceedings on its part. Each of the Amendment Documents (i) has been duly and validly executed and delivered by the Borrower and (ii) constitutes legal,
valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with its terms.
(b) Neither the execution and delivery of the Amendment Documents nor the consummation of the transactions herein or therein contemplated nor compliance with the terms and provisions hereof or thereof by any of them or by the Credit Agreement as amended hereby will (i) conflict with or constitute a material default under (x) the terms and conditions of the Organizational Documents of the Borrower, (y) any Material Agreement to which the Borrower is a party or by which it is bound or to which it is subject, (z) any applicable Law or any order, writ, judgment, injunction or decree to the Borrower is a party or by which it is bound or to which it or its properties is subject, or (ii) result in the creation or enforcement of any Lien, charge or encumbrance upon any property (now or hereafter acquired) of the Borrower (other than Liens granted under the Loan Documents).
(c) All of the representations and warranties contained in the Loan Documents, including without limitation in Article V of the Credit Agreement, are correct in all material respects on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date, in which case such representations and warranties are correct in all material respects as of such date; provided that any representation or warranty that is qualified by materiality or Material Adverse Change is correct in all respects as though made on and as of the applicable date.
(d) No event has occurred and is continuing, or would result from the execution and delivery of the Amendment Documents, which constitutes a Default or an Event of Default.
Section 7. Effectiveness. The amendments set forth in Sections 2 and 3 shall be effective only if the Administrative Agent has received, on or before the date of this Amendment, each of the following, each in form and substance acceptable to the Administrative Agent in its sole discretion:
(a) this Amendment, duly executed by the parties hereto;
(b) a certificate of the secretary or other appropriate officer of the Borrower certifying that (i) the execution, delivery and performance of the Amendment Documents were duly approved by all necessary action of the Governing Board of the Borrower, and attaching true and correct copies of the applicable resolutions granting such approval; (ii) the Organizational Documents of the Borrower, which were certified and delivered to the Administrative Agent by the Borrower pursuant to the Certificate of Secretary of the Borrower, executed by The Andersons, Inc., as manager of the Borrower, dated as of October 1, 2019 (the “October 2019 Certificate”), continue in full force and effect and have not been amended or otherwise modified except as set forth in the certificate to be delivered as of the date hereof; and (iii) except as certified therein, the officers and agents of the Borrower who have been certified to the Administrative Agent pursuant to the October 2019 Certificate and the Certificate of Secretary of the Borrower, executed by The Andersons, Inc., as manager of the Borrower, dated July 17, 2020, as being authorized to sign and to act on behalf of the Borrower continue to be so authorized or setting forth the sample signatures of each of the officers and agents of the Borrower authorized to execute and deliver this Amendment and all other documents, agreements and certificates on behalf of the Borrower;
(c) payment in immediately available funds of all fees and expenses due and payable pursuant to Section 9 hereof to the extent invoiced on or prior to the date hereof.
Section 8. Release of the Administrative Agent and the Secured Parties. The Borrower hereby absolutely and unconditionally releases and forever discharges the Administrative Agent and the other Secured Parties, and any and all participants, Related Parties, successors and assigns thereof, together with all of the present and former Directors, officers, employees, agents, attorneys of any of the foregoing, from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which the Borrower has had, now has or has made claim to have against any such Person for or by reason of any act, omission, matter, cause or thing whatsoever occurring or arising prior to the date of this Amendment, whether such claims, demands and causes of action are matured or unmatured or known or unknown, in each case to the extent arising in connection with any of the Loan Documents.
Section 9. Costs and Expenses. The Borrower hereby reaffirms its agreement under Section 11.3 of the Credit Agreement to pay or reimburse the Administrative Agent on demand for all reasonable out-of-pocket expenses paid or incurred by the Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent and each other agent of the Administrative Agent), in connection with the preparation, negotiation, execution, delivery and administration of this Amendment and the other documents, agreements and certificates contemplated hereunder (whether or not the transactions contemplated hereby or thereby shall be consummated).
Section 10. Miscellaneous. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. This Amendment, together with the Credit Agreement as amended hereby and the other Loan Documents, comprises the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to such subject matter, superseding all prior oral or written understandings. Any provision of this Amendment which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by facsimile or by e-mail transmission of a PDF or similar copy shall be equally as effective as delivery of a manually executed counterpart of this Amendment. Any party delivering an executed counterpart signature page by facsimile or by e-mail transmission shall also deliver a manually executed counterpart, but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability or binding effect of this Amendment.
Signature pages follow.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be signed by their duly authorized officers as of the day and year first above written.
THE ANDERSONS MARATHON HOLDINGS LLC, as Borrower
By:
Name: Brian K. Walz
Title: Vice President & Treasurer of The Andersons, Inc.
Signature Page to Third Amendment to Credit Agreement
COBANK, ACB, as Administrative Agent and Issuing Lender
By:
Name:
Title:
Signature Page to Third Amendment to Credit Agreement
COBANK, FCB, as a Lender
By:
Name:
Title:
Signature Page to Third Amendment to Credit Agreement
FARM CREDIT MID-AMERICA, PCA, as a Lender
By:
Name:
Title:
Signature Page to Third Amendment to Credit Agreement
METROPOLITAN LIFE INSURANCE COMPANY, a New York corporation, as a Lender
By: MetLife Investment Management, LLC, a Delaware limited liability company, its investment manager
By:
Name:
Title:
Signature Page to Third Amendment to Credit Agreement
BANK OF THE WEST, as a Lender
By:
Name:
Title:
Signature Page to Third Amendment to Credit Agreement
CONSENT OF VOTING PARTICIPANTS
| FARM CREDIT EAST, ACA, as a Voting Participant<br><br><br><br>By: __________________________________<br><br>Name: ________________________________<br><br>Title: _________________________________ | FARM CREDIT SERVICES OF AMERICA, FLCA, as a Voting Participant<br><br><br><br>By: __________________________________<br><br>Name: ________________________________<br><br>Title: _________________________________ |
|---|---|
| GREENSTONE FARM CREDIT SERVICES, FLCA, as a Voting Participant<br><br><br><br>By: __________________________________<br><br>Name: ________________________________<br><br>Title: _________________________________ |
Signature Page to Consent of Voting Participants to
Third Amendment to Credit Agreement
Document
Exhibit 31.1
Certifications
I, Patrick E. Bowe, certify that:
| 1. | I have reviewed this report on Form 10-Q of The Andersons, Inc. | | --- | --- || 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | | --- | --- || 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | | --- | --- || 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | | --- | --- || a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; | | --- | --- || b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | | --- | --- || c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | | --- | --- || d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | | --- | --- || 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): | | --- | --- || a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | | --- | --- || b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | | --- | --- |
August 4, 2021
| /s/ Patrick E. Bowe |
|---|
| Patrick E. Bowe |
| Chief Executive Officer |
Document
Exhibit 31.2
Certifications
I, Brian A. Valentine, certify that:
| 1. | I have reviewed this report on Form 10-Q of The Andersons, Inc. | | --- | --- || 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | | --- | --- || 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | | --- | --- || 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | | --- | --- || a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; | | --- | --- || b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | | --- | --- || c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | | --- | --- || d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | | --- | --- || 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): | | --- | --- || a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | | --- | --- || b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | | --- | --- |
August 4, 2021
| /s/ Brian A. Valentine |
|---|
| Brian A. Valentine |
| Executive Vice President and Chief Financial Officer |
Document
Exhibit 32.1
The Andersons, Inc.
Certifications Pursuant to 18 U.S.C. Section 1350
In connection with the Quarterly Report of The Andersons, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to such officer’s knowledge:
(1)The Report fully complies with the requirements of 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
August 4, 2021
| /s/ Patrick E. Bowe |
|---|
| Patrick E. Bowe |
| Chief Executive Officer |
| /s/ Brian A. Valentine |
| Brian A. Valentine |
| Executive Vice President and Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to The Andersons, Inc. and will be retained by The Andersons, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Document
Exhibit 95.1
Mine Safety Disclosure
Our mining operation(s) are subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). We have disclosed below information regarding certain citations and orders issued by MSHA and related assessments and legal actions with respect to these mining operation(s). In evaluating the below information regarding mine safety and health, investors should take into account factors such as: (i) the number of citations and orders will vary depending on the size of a mine; (ii) the number of citations issued will vary from inspector to inspector and mine to mine; and (iii) citations and orders can be contested and appealed, and in that process, are often reduced in severity and amount, and are sometimes dismissed or vacated. The tables below include information regarding issued citations and/or orders which may or may not become final orders. The tables below do not include any orders or citations issued to independent contractors at our mines.
Under the Dodd-Frank Act, each operator of a coal or other mine is required to include certain mine safety results within its periodic reports filed with the SEC. As required by the reporting requirements included in §1503(a) of the Dodd-Frank Act, we present the following items regarding certain mining safety and health matters, for the period presented, for each of our mine locations that are covered under the scope of the Dodd-Frank Act:
(A) Mine Act Section 104 Significant and Substantial (“S&S”) citations shown below are for alleged violations of mandatory health or safety standards that could significantly and substantially contribute to a mine health and safety hazard.
(B) Mine Act Section 104(b) orders are for alleged failures to totally abate a citation within the time period specified in the citation.
(C) Mine Act Section 104(d) citations and orders are for an alleged unwarrantable failure (i.e., aggravated conduct constituting more than ordinary negligence) to comply with mandatory health or safety standards.
(D) Mine Act Section 110(b)(2) violations are for an alleged “flagrant” failure (i.e., reckless or repeated) to make reasonable efforts to eliminate a known violation of a mandatory safety or health standard that substantially and proximately caused, or reasonably could have been expected to cause, death or serious bodily injury.
(E) Mine Act Section 107(a) orders are for alleged conditions or practices which could reasonably be expected to cause death or serious physical harm before such condition or practice can be abated and result in orders of immediate withdrawal from the area of the mine affected by the condition.
(F) Amounts shown include assessments proposed by MSHA during the three months ended June 30, 2021 on all citations and orders, including those citations and orders that are not required to be included within the above chart.
(G) Mine Act Section 104(e) written notices are for an alleged pattern of violations of mandatory health or safety standards that could significantly and substantially contribute to a mine safety or health hazard.
The following tables disclose the information listed above for the three months ended June 30, 2021:
| Three months ended June 30, 2021 | ||||||
|---|---|---|---|---|---|---|
| (A) | (B) | (C) | (D) | (E) | (F) | |
| Mine Name/MSHA ID No. | Section 104 S&S<br>Citations | Section 104(b)<br>Orders | Section 104(d) Citations/Orders | Section 110(b)(2) Citations/Orders | Section 107(a)<br>Orders | Total Dollar Value of MSHA Assessments Proposed<br><br>(In thousands) |
| Industrial Sand Processing Plt-North Branch/21-02917 | — | — | — | — | — | $— |
| Titan Lansing OKC Sand Plant/34-02189 | — | — | — | — | — | $— |
| Three months ended June 30, 2021 | ||||||
| --- | --- | --- | --- | --- | --- | |
| (G) | ||||||
| Mine Name/MSHA ID No. | Received Notice of Pattern of Violations Under Section 104(e) (yes/no) | Total Number of Mining Related Fatalities | Legal Actions Pending as of Last Day of Period | Legal Actions Initiated During Period | Legal Actions Resolved During Period | |
| Industrial Sand Processing Plt-North Branch/21-02917 | No | — | — | — | — | |
| Titan Lansing OKC Sand Plant/34-02189 | No | — | — | — | — |
During the three months ended June 30, 2021, there were no legal actions initiated, pending, or resolved before the Federal Mine Safety and Health Review Commission related to contests of citations and orders, contests of proposed penalties, complaints for compensation, complaints of discharge/discrimination/interference, applications for temporary relief, or appeals of judges’ rulings.